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Advantages and Disadvantages of Electronic Commerce (e-commerce)

Electronic commerce or in short e-commerce, refers to business activities like selling and purchasing of products and services carried out over electronic systems like the Internet and computer networks. The history of e-commerce dates back to 1970, when for the first time, electronic data interchange (EDI) and electronic fund transfer were introduced. Since then, a rapid growth of e-commerce has pervaded almost every other aspects of business such as supply chain management, transaction processing, Internet marketing and inventory management. Advantages and Disadvantages of Electronic Commerce Like any conventional business, electronic commerce is also characterized by some advantages and inherent drawbacks. Let's have a look at some of these important advantages and disadvantages of electronic commerce. Advantages of Electronic Commerce The greatest and the most important advantage of e-commerce, is that it enables a business concern or individual to reach the global market. It caters to the demands of both the national and the international market, as your business activities are no longer restricted by geographical boundaries. With the help of electronic commerce, even small enterprises can access the global market for selling and purchasing products and services. Even time restrictions are nonexistent while conducting businesses, as e-commerce empowers one to execute business transactions 24 hours a day and even on holidays and weekends. This in turn significantly increases sales and profit. Electronic commerce gives the customers the opportunity to look for cheaper and quality products. With the help of e-commerce, consumers can easily research on a specific product and sometimes even find out the original manufacturer to purchase a product at a much cheaper price than that charged by the wholesaler. Shopping online is usually more convenient and time saving than conventional shopping. Besides these, people also come across reviews posted by other customers, about the products purchased from a particular e-commerce site, which can help make purchasing decisions. For business concerns, e-commerce significantly cuts down the cost associated with marketing, customer care, processing, information storage and inventory management. It reduces the time period involved with business process re-engineering, customization of products to meet the demand of particular customers, increasing productivity and customer care services. Electronic commerce reduces the burden of infrastructure to conduct businesses and thereby raises the amount of funds available for profitable investment. It also enables efficient customer care services. On the other hand, It collects and manages information related to customer behavior, which in turn helps develop and adopt an efficient marketing and promotional strategy. Disadvantages of Electronic Commerce

Electronic commerce is also characterized by some technological and inherent limitations which has restricted the number of people using this revolutionary system. One important disadvantage of e-commerce is that the Internet has still not touched the lives of a great number of people, either due to the lack of knowledge or trust. A large number of people do not use the Internet for any kind of financial transaction. Some people simply refuse to trust the authenticity of completely impersonal business transactions, as in the case of e-commerce. Many people have reservations regarding the requirement to disclose personal and private information for security concerns. Many times, the legitimacy and authenticity of different e-commerce sites have also been questioned. Another limitation of e-commerce is that it is not suitable for perishable commodities like food items. People prefer to shop in the conventional way than to use e-commerce for purchasing food products. So e-commerce is not suitable for such business sectors. The time period required for delivering physical products can also be quite significant in case of e-commerce. A lot of phone calls and e-mails may be required till you get your desired products. However, returning the product and getting a refund can be even more troublesome and time consuming than purchasing, in case if you are not satisfied with a particular product. Thus, on evaluating the various pros and cons of electronic commerce, we can say that the advantages of e-commerce have the potential to outweigh the disadvantages. A proper strategy to address the technical issues and to build up customers trust in the system, can change the present scenario and help e-commerce adapt to the changing needs of the world. By Chandramita Bora business-to-consumer and business-to-business commerce conducted by way of the Internet or other electronic networks. E-commerce originated in a standard for the exchange of documents during the 1948 49 Berlin blockade and airlift. Various industries elaborated upon the system until the first general standard was published in 1975. The electronic data interchange (EDI) standard is unambiguous, independent of any particular machine, and flexible enough to handle most simple electronic transactions. In addition to standard forms for business-to-business transactions, e-commerce encompasses much wider activity for example, the deployment of secure private networks (intranets) for sharing information within a company, as well as selective extensions of a company's intranet to collaborating business networks (extranets). A new form of cooperation known as a virtual company, actually a network of firms, each performing some of the processes needed to manufacture a product or deliver a service, has flourished. For more information on e-commerce, visit Britannica.com. Electronic-COMMERCE) Selling products online via the Web. Also called "e-business," "etailing" and "I-commerce." Although in most cases e-commerce and e-business are synonymous, e-commerce implies that goods can be purchased online, whereas e-business might be used as an umbrella term for a total presence on the Web, which would include the e-commerce shopping component. See shopping cart.

E-commerce may also refer to electronic data interchange (see EDI), in which one company's computer queries the inventory and transmits purchase orders to another company's computer. See m-commerce, microcommerce and clicks and mortar. Perhaps the First E-Commerce In 1886, a telegraph operator was able to obtain a shipment of watches that was refused by the local jeweler. Using the telegraph, he sold all the watches to fellow operators and railroad employees and then ordered more. Within a short time, he made enough money to quit his job and start his own catalog mail order business. The young man's name was Richard Sears, who formed Sears, Roebuck and Co. in 1893. Download Computer Desktop Encyclopedia to your iPhone/iTouch A type of business model, or segment of a larger business model, that enables a firm or individual to conduct business over an electronic network, typically the internet. Electronic commerce operates in all four of the major market segments: business to business, business to consumer, consumer to consumer and consumer to business. Investopedia Says: ECommerce has allowed firms to establish a market presence, or to enhance an already larger market position, by allowing for a cheaper and more efficient distribution chain for their products or services. One example of a firm having successfully used eCommerce is Chapters, which not only has physical stores, but an online store where the customer can buy books, CDs and DVDs. Related Links: E-tailing has changed the way consumers do nearly everything. Do you know how to pick the best retailer? Choosing The Winners In The Click-And-Mortar Game Electronic Commerce, or e-commerce, is the conduct of business by electronic means. Following this general definition, e-commerce began soon after Samuel Morse sent his first telegraph message in 1844, and it expanded across the sea when another message, containing share price information from the New York stock market, linked Europe and North America in 1858. By 1877, Western Union, the dominant telegraph company, moved $2.5 million worth of transactions annually among businesses and consumers, and news companies led by Reuters sold financial and other information to customers around the world. The telephone permitted electronic voice transactions and greatly extended the reach of retail companies like Sears, whose mail-and telephone-order catalog helped to create genuine national firms. In the twenty-first century, e-commerce referred more specifically to transactions between businesses (B2B e-commerce) and between businesses and consumers (B2C e-commerce) through the use of computer communication, particularly the Internet. This form of electronic commerce began in 1968, when what was called Electronic Data Interchange permitted companies to carry out electronic transactions. However, it was not until 1984 that a standardized format (known as ASC X12) provided a dependable means to conduct electronic business, and it was not until 1994 that Netscape introduced a browser program whose graphical presentation significantly eased the use of computer communication for all kinds of computer activity, including e-commerce. To take advantage of the widespread adoption of the personal computer and the graphical browser, Jeff Bezos in 1995 founded Amazon.com to sell books and eventually a full range of consumer items over the Internet. Amazon went public in 1997 and in 2000 earned $2.76 billion in revenue, though its net loss of $417 million troubled investors. Other booksellers followed

quickly, notably Barnes and Noble, whose web subsidiarybegun in 1997also experienced rapid revenue growth and steep losses. One of the most successful e-commerce companies, eBay, departed from traditional retail outlets by serving as an electronic auction site or meeting place for buyers and sellers, thereby avoiding expensive warehousing and shipping costs. Its earnings derive from membership and transaction charges that its participants pay to join the auction. The company's profit of $58.6 million in 2000 made it one of the few to show a positive balance sheet. Other notable consumer e-commerce firms like the "name your own price" company Priceline.com and the online stock trading company E*TRADE suffered significant losses. Despite the backing of the New York Times, the financial news site The Street.com also failed to live up to expectations and eliminated most of its staff. Others did not manage to survive, notably the online-community firm theglobe.com, which received strong startup support in 1998, and Value America, which sold discounted general merchandise and enjoyed the backing of Microsoft's cofounder Paul Allen and the FedEx corporation. The business-to-business form of e-commerce fared better in 2000 and 2001, although a faltering economy lowered expectations. B2B e-commerce evolved with the development of the Internet. One of the leading B2B firms, i2 Technologies, was founded in 1988 as a business software producer to help companies manage inventories electronically. As the Internet expanded, the role of i2 grew to include the procurement and management of all the elements required to produce finished goods. Successful in this endeavor, its revenue grew to $1.1 billion and its profit to $108 billion in 2000. Another form of B2B e-commerce involves managing a market for firms in specific industries. VerticalNet, founded in 1995, links producer goods and services markets, earning money on commissions it receives for deals struck using its electronic marketplace. Other market-creating firms focus on specific products. These include Pantellos in the utilities industry, ChemConnect in chemicals, and Intercontinental Exchange for oil and gas. Concerned about this trend, manufacturers began creating their own electronic purchasing markets, the largest of which, Covisint, was founded in 2000 by General Motors, Ford, and Daimler Chrysler. In its first year of operation, the company managed the purchasing of $129 billion in materials for the automobile industry. Other B2B companies have concentrated on the services sector, with consulting (Sapient) and advertising (DoubleClick) somewhat successful, and health services (Healthion/WebMD) less so. By 2001, electronic commerce had not grown to levels anticipated in the late 1990s. In addition to a decline in economic growth, there remained uncertainties, particularly in relation to the consumer sector. Buyers were slower than expected to change habits and make the shift from going to a store to shopping on a computer. Concerns about privacy and security remained, although some progress was made in setting national and international regulations. Businesses remained reluctant to guarantee strict privacy protection because selling information about customers was a valuable part of the e-commerce business. Nevertheless, business-to-business sales continued to grow and companies that developed their electronic sales divisions slowly over this period and carefully integrated their e-commerce and conventional business practices appeared to be more successful. Forecasters remained optimistic, anticipating the $657 billion spent worldwide on e-commerce in 2000 to double in 2001 and grow to $6.8 trillion by 2004. Bibliography Frank, Stephen E. NetWorth: Successful Investing in the Companies that Will Prevail through Internet Booms and Busts. New York: Simon and Schuster, 2001. Lessig, Lawrence. Code and Other Laws of Cyberspace. New York: Basic, 1999.

Schiller, Dan. Digital Capitalism: Networking the Global Market System. Cambridge, Mass.: MIT Press, 1999. Standage, Tom. The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century's Online Pioneers. New York: Walker, 1998. e-commerce, commerce conducted over the Internet, most often via the World Wide Web. Ecommerce can apply to purchases made through the Web or to business-to-business activities such as inventory transfers. A customer can order items from a vendor's Web site, paying with a credit card (the customer enters account information via the computer) or with a previously established "cybercash" account. The transaction information is transmitted (usually by modem) to a financial institution for payment clearance and to the vendor for order fulfillment. Personal and account information is kept confidential through the use of "secured transactions" that use encryption technology (see data encryption). In an effort to further the development of e-commerce, the federal Electronic Signatures Act (2000) established uniform national standards for determining the circumstances under which contracts and notifications in electronic form are legally valid. Legal standards were also specified regarding the use of an electronic signature ("an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record"), but the law did not specify technological standards for implementing the act. The act gave electronic signatures a legal standing similar to that of paper signatures, allowing contracts and other agreements, such as those establishing a loan or brokerage account, to be signed on line. Once consumers' worries eased about on-line credit card purchases, e-commerce grew rapidly in the late 1990s. In 1998 on-line retail ("e-tail") sales were $7.2 billion, double the amount in 1997. On-line retail ordering represented 15% of nonstore sales (which included catalogs, television sales, and direct sales) in 1998, but this constituted only 1% of total retail revenues that year. Books are the most popular on-line product order-with over half of Web shoppers ordering books (one on-line bookseller, Amazon.com, which started in 1995, had revenues of $610 million in 1998)-followed by software, audio compact discs, and personal computers. Other on-line commerce includes trading of stocks, purchases of airline tickets and groceries, and participation in auctions. Electronic commerce, commonly known as e-commerce or eCommerce, or e-business consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage. The use of commerce is conducted in this way, spurring and drawing on innovations in electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web at least at some point in the transaction's lifecycle, although it can encompass a wider range of technologies such as e-mail as well. A large percentage of electronic commerce is conducted entirely electronically for virtual items such as access to premium content on a website, but most electronic commerce involves the transportation of physical items in some way. Online retailers are sometimes known as e-tailers and online retail is sometimes known as e-tail. Almost all big retailers have electronic commerce presence on the World Wide Web.

Electronic commerce that is conducted between businesses is referred to as business-to-business or B2B. B2B can be open to all interested parties (e.g. commodity exchange) or limited to specific, pre-qualified participants (private electronic market). Electronic commerce that is conducted between businesses and consumers, on the other hand, is referred to as business-toconsumer or B2C. This is the type of electronic commerce conducted by companies such as Amazon.com. Online shopping is a form of electronic commerce where the buyer is directly online to the seller's computer usually via the internet. There is no intermediary service. The sale and purchase transaction is completed electronically and interactively in real-time such as Amazon.com for new books. If an intermediary is present, then the sale and purchase transaction is called electronic commerce such as eBay.com. Electronic commerce is generally considered to be the sales aspect of e-business. It also consists of the exchange of data to facilitate the financing and payment aspects of the business transactions.
Contents [hide] 1 History 1.1 Early development 1.2 Timeline

2 Business applications 3 Government regulations 4 Forms 5 Impact on markets and retailers 6 See also 7 Notes 8 References 9 External links

History
Early development

The meaning of electronic commerce has changed over the last 30 years. Originally, electronic commerce meant the facilitation of commercial transactions electronically, using technology such as Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT). These were both introduced in the late 1970s, allowing businesses to send commercial documents like purchase orders or invoices electronically. The growth and acceptance of credit cards, automated teller machines (ATM) and telephone banking in the 1980s were also forms of electronic commerce. Another form of e-commerce was the airline reservation system typified by Sabre in the USA and Travicom in the UK. From the 1990s onwards, electronic commerce would additionally include enterprise resource planning systems (ERP), data mining and data warehousing. An early example of many-to-many electronic commerce in physical goods was the Boston Computer Exchange, a marketplace for used computers launched in 1982. An early online

information marketplace, including online consulting, was the American Information Exchange, another pre Internet[clarification needed] online system introduced in 1991. In 1990, Tim Berners-Lee invented the WorldWideWeb web browser and transformed an academic telecommunication network into a worldwide everyman everyday communication system called internet/www. Commercial enterprise on the Internet was strictly prohibited until 1991.[1] Although the Internet became popular worldwide around 1994 when the first internet online shopping started, it took about five years to introduce security protocols and DSL allowing continual connection to the Internet. By the end of 2000, many European and American business companies offered their services through the World Wide Web. Since then people began to associate a word "ecommerce" with the ability of purchasing various goods through the Internet using secure protocols and electronic payment services.
Timeline 1979: Michael Aldrich invented online shopping 1981: Thomson Holidays, UK is first B2B online shopping 1982: Minitel was introduced nationwide in France by France Telecom and used for online ordering. 1984: Gateshead SIS/Tesco is first B2C online shopping and Mrs Snowball, 72, is the first online home shopper 1985: Nissan UK sells cars and finance with credit checking to customers online from dealers' lots. 1987: Swreg begins to provide software and shareware authors means to sell their products online through an electronic Merchant account. 1990: Tim Berners-Lee writes the first web browser, WorldWideWeb, using a NeXT computer. 1992: J.H. Snider and Terra Ziporyn publish Future Shop: How New Technologies Will Change the Way We Shop and What We Buy. St. Martin's Press. ISBN 0-312-06359-8. 1994: Netscape releases the Navigator browser in October under the code name Mozilla. Pizza Hut offers online ordering on its Web page. The first online bank opens. Attempts to offer flower delivery and magazine subscriptions online. Adult materials also become commercially available, as do cars and bikes. Netscape 1.0 is introduced in late 1994 SSL encryption that made transactions secure. 1995: Jeff Bezos launches Amazon.com and the first commercial-free 24 hour, internet-only radio stations, Radio HK and NetRadio start broadcasting. Dell and Cisco begin to aggressively use Internet for commercial transactions. eBay is founded by computer programmer Pierre Omidyar as AuctionWeb. 1998: Electronic postal stamps can be purchased and downloaded for printing from the Web. 1999: Business.com sold for US $7.5 million to eCompanies, which was purchased in 1997 for US $149,000. The peer-to-peer filesharing software Napster launches. ATG Stores launches to sell decorative items for the home online.

2000: The dot-com bust. 2002: eBay acquires PayPal for $1.5 billion.[2] Niche retail companies CSN Stores and NetShops are founded with the concept of selling products through several targeted domains, rather than a central portal. 2003: Amazon.com posts first yearly profit. 2007: Business.com acquired by R.H. Donnelley for $345 million.[3] 2009: Zappos.com acquired by Amazon.com for $928 million.[4] Retail Convergence, operator of private sale website RueLaLa.com, acquired by GSI Commerce for $180 million, plus up to $170 million in earn-out payments based on performance through 2012.[5] 2010: US eCommerce and Online Retail sales projected to reach $173 billion, an increase of 7 percent over 2009.[6]

Business applications
Some common applications related to electronic commerce are the following:
Email Enterprise content management Instant messaging Newsgroups Online shopping and order tracking Online banking Online office suites Domestic and international payment systems Shopping cart software Teleconferencing Electronic tickets

Government regulations
In the United States, some electronic commerce activities are regulated by the Federal Trade Commission (FTC). These activities include the use of commercial e-mails, online advertising and consumer privacy. The CAN-SPAM Act of 2003 establishes national standards for direct marketing over e-mail. The Federal Trade Commission Act regulates all forms of advertising, including online advertising, and states that advertising must be truthful and non-deceptive.[7] Using its authority under Section 5 of the FTC Act, which prohibits unfair or deceptive practices, the FTC has brought a number of cases to enforce the promises in corporate privacy statements, including promises about the security of consumers personal information.[8] As result, any corporate privacy policy related to e-commerce activity may be subject to enforcement by the FTC. The Ryan Haight Online Pharmacy Consumer Protection Act of 2008, which came into law in 2008, amends the Controlled Substances Act to address online pharmacies.[9]

Forms
Contemporary electronic commerce involves everything from ordering "digital" content for immediate online consumption, to ordering conventional goods and services, to "meta" services to facilitate other types of electronic commerce. On the consumer level, electronic commerce is mostly conducted on the World Wide Web. An individual can go online to purchase anything from books or groceries, to expensive items like real estate. Another example would be online banking, i.e. online bill payments, buying stocks, transferring funds from one account to another, and initiating wire payment to another country. All of these activities can be done with a few strokes of the keyboard. On the institutional level, big corporations and financial institutions use the internet to exchange financial data to facilitate domestic and international business. Data integrity and security are very hot and pressing issues for electronic commerce today.

Impact on markets and retailers


This section requires expansion.

Economists have theorised that e-commerce ought to lead to intensified price competition, as it increases consumers' ability to gather information about products and prices. Research by four economists at the University of Chicago has found that the growth of online shopping has also affected industry structure in two areas that have seen significant growth in e-commerce, bookshops and travel agencies. Generally, larger firms have grown at the expense of smaller ones, as they are able to use economies of scale and offer lower prices. The lone exception to this pattern has been the very smallest category of bookseller, shops with between one and four employees, which appear to have withstood the trend.[10]

Understanding Click and Mortar ECommerce Approaches: A Conceptual Framework and Research Agenda
Charles Steinfield
Michigan State University Abstract

In this post dot-com era, much e-commerce activity now arises from established firms with traditional physical outlets. Despite the growth in such click and mortar approaches to ecommerce, little research has specifically addressed this common business model. This article focuses on the underlying dynamics of click and mortar e-commerce businesses using a framework that outlines the potential synergies arising from the integration of e-commerce with traditional channels. Research and theory from such areas as transaction cost economics, interorganizational systems, competitive strategy, and economic sociology are used to develop

the click and mortar framework. It details the sources of synergy, the management interventions that can help firms avoid damaging channel conflicts, and the types of benefits yielded by integrated click and mortar approaches. The framework is applied to a specific click and mortar case, an electronics retailer, in order to demonstrate its explanatory value. The heuristic value is demonstrated by deriving several example propositions to guide future empirical work.
Introduction

The advent of Internet-based electronic commerce over the past eight years has given businesses an unprecedented marketing opportunity. As the Internet-using population has grown, so too has the potential market size for any business that sets up a shop on the Web [1]. An increasing number of Americans are shopping online. The U.S. Commerce Department estimates that the number of people who have purchased a product or engaged in banking online more than doubled in the past year, growing from 13.3% of the U.S. population in August 2000 to more than 29% in September 2001 (NTIA 2002). Additionally, more than a third of Americans, and fully two-thirds of the Internet users, now use the Internet to obtain product information. Not surprisingly, despite the economic slowdown, this increased e-commerce activity has translated in growing online sales revenue. Fourth quarter 2001 e-commerce sales increased by 13.1% over fourth quarter 2000, reaching more than $10 billion (U.S. Census Bureau 2002) [2]. Total retail sales only increased by 5.3 during this same period. The continuing growth of Internet use in general, and especially use for product search and online shopping, has not gone unnoticed by firms in the U.S. One recent study of Internet use by business estimates that more than 90% of U.S. firms are using the Internet to reach customers in some way, with half reporting that they actually sell products and services over the Internet (eMarketer 2002). Despite this rather optimistic data, there was a dramatic change in e-commerce in 2000 and 2001, resulting from the loss of confidence in Internet-only businesses (the so-called dot-coms). With each new reported dot-com failure, there is a growing recognition that the Internet is unlikely to displace traditional channels anytime soon, at least in the world of business to consumer (B2C) commerce. Rather, a number of traditional enterprises have moved to integrate e-commerce into their channel mix, using the Internet to supplement brick and mortar retail channels (Pristin 1999; Tedeschi 1999a; Otto and Chung 2000; Rosen and Howard 2000; Steinfield et al. 2001b; Regan 2002; Steinfield, Adelaar, and Lai 2002). Indeed, the arrival of big retailers may have contributed to the collapse of many struggling dot-coms (Tedeschi 2000a), while others have recognized that they need a physical outlet in order to survive (Tedeschi 2000b). Electronic commerce researchers, using terms like "clicks and mortar," "bricks and clicks," "surf and turf," "cyber-enhanced retailing," and "hybrid e-commerce," now consider the combination of physical and web channels to be a distinct electronic commerce business model (Timmer 1998; Otto and Chung 2000; Rosen and Howard 2000; Afuah and Tucci 2001; Steinfield et al. 2001b). However, the integration of e-commerce with existing physical channels is a challenging undertaking that can create problems for management. Marketing theorists have long recognized the potential for channel conflicts that can occur when there are alternative paths that products can take to the end consumer (Stern and Ansary 1992). Any manufacturer obviously risks damaging its relationship with an established retail channel when it agrees to sell through a new retailer. In the extreme case, the initial retailer may choose to retaliate by dropping the product and selling a competing one in its place. Manufacturers must carefully coordinate their sales through a wide range of potentially competing downstream channels; some owned, such as factory outlet stores, catalog sales, and call centers, and some outsourced, such as boutique,

chain and department stores (Friedman and Furey 1999). Today, e-commerce channels have been added to the channel mix, creating even more cross-channel conflict potential. Indeed, even when a retailer develops its own e-commerce capability, it potentially threatens to cannibalize sales from its own physical operations (Useem 1999; Ward 2001). Even with the growing reliance on the click and mortar business model in e-commerce, little theoretical and empirical research exists on the topic. The Internet business model literature focuses much more on the economics and strategy of pure Internet firms than it does on traditional firms that develop an e-commerce capability (Timmer 1998). In practice, many traditional firms create e-commerce channels that operate quite independently from their existing physical outlets, in an attempt to gain the economic advantages from the Internet without the extra costs, lack of innovativeness, or other burdens from their old way of doing business (Steinfield, Mahler, and Bauer 1999; Useem 1999; Venkatesh 1999). The purpose of this article is to develop an alternative approach - one that emphasizes the integration of online channels with existing physical infrastructure. The central thesis is that the integration of physical and online channels enables firms to capitalize on potential synergies between the two, yielding competitive advantages over pure Internet firms, or firms that offer e-commerce channels in a more parallel (non-integrated) fashion. A conceptual framework derived from competitive strategy and economic theory is provided that identifies the underlying sources of potential synergies in click and mortar enterprises. Moreover, competitive strategy and marketing research related to channel coordination and channel conflict is used to highlight the means by which firms can more effectively integrate across physical and e-commerce channels, avoiding destructive channel conflicts. Finally, the framework directs attention to a number of potential synergy-driven benefits that click and mortar firms may ultimately gain by taking a more integrated approach to e-commerce. The remainder of this article is organized as follows. First, a review of literature provides the basis for the click and mortar e-commerce conceptual framework. The next section describes a click and mortar case firm that illustrates the empirical relevance of the framework. We then provide several propositions that illustrate the potential heuristic utility of the framework for future e-commerce research. Finally, the article concludes with a call for further empirical work to enhance our understanding of the complex relationship between physical and virtual channels, and provide guidance to firms in this critical era when e-commerce strategies are still being defined.
Theoretical Foundations

In the early years of Web-based commerce, much emphasis was placed on sources of competitive advantage that Internet firms had over traditional ones, primarily using transaction cost logic (Bakos 1997; Choi, Stahl, and Whinston 1997). Transaction cost economics emphasizes the nature of costs that firms incur in the process of conducting transactions with buyers or sellers (Williamson 1975, 1985). Such costs include information gathering and search costs, negotiation and settlement costs, and monitoring costs to ensure that trading partners adhere to the terms of any agreements made. Initially, transaction cost economics focused on business-to-business trading, and directed our attention to how such costs exert an influence on market structure. The classic question was whether high transaction costs caused firms to avoid the market altogether, and develop an in-house production ability in order to avoid being taken advantage of by opportunistic sellers (Williamson 1975, 1985). Information systems researchers relied heavily on transaction-cost theory to predict that a major effect of the Internet would be to lower critical transaction costs, such as search and monitoring costs (Malone, Yates, and

Benjamin 1987; Bakos 1997). Once search costs were reduced, buyers could then find sellers in distant geographic markets who had lower prices, provided better service, offered higher quality, or had products that better matched needs (Malone et al. 1987; Wildman and Guerin-Calvert 1991; Wigand and Benjamin 1995; Bakos 1997; Cairncross 1997; Choi et al. 1997; Wigand 1997). Hence, even though first applied to inter-firm relationships, transaction cost economics also provided the conceptual underpinnings for explaining how distant Internet firms may be able to compete with local, physically present businesses (Choi et al. 1997). That is, it enables us to conceptualize the transaction costs that are incurred in a B2C relationship, such as the costs consumers incur in their search and information gathering activities. Indeed, some have argued that, because of the ease of product information search on the Internet, the basic raison d'etre for many local retailers - the fact that they had a geographic monopoly and could therefore charge high enough prices to overcome their inefficiencies and limited selection - no longer applied (Cairncross 1997). In addition to the transaction cost advantages offered by e-commerce, researchers have spelled out numerous economic advantages that virtual firms enjoy over physical firms. Web-based businesses are perceived to hold many operational, cost, scale, and scope advantages over firms confined to physical channels. These advantages include access to wider markets, lower inventory and building costs, flexibility in sourcing inputs, improved transaction automation and data mining capabilities, ability to bypass intermediaries, lower menu costs enabling more rapid response to market changes, ease of bundling complementary products, ease of offering 7X24 access, and no limitation on depth of information provided to potential customers (Wigand and Benjamin 1995; Choi et al. 1997; Wigand 1997; Bailey 1998; Anonymous 2000; Afuah and Tucci 2001). These analyses, however, mainly contrast traditional firms with Internet firms. They ignore the potential synergies that arise when firms have a combination of physical and e-commerce channels. Indeed, recent conceptual and empirical work has sharply criticized the early expectations that virtual firms will drive out physical ones and make distance irrelevant (Friedman and Furey 1999; Steinfield and Klein 1999; Otto and Chung 2000; Rosen and Howard 2000; Steinfield, Bouwman, and Adelaar 2001a; Steinfield et al. 2001b; Ward 2001; Steinfield et al. 2002). In these works, the authors emphasize the theoretical advantages of hybrid approaches to e-commerce. Importantly, these works suggest that advantages arise not only from the ability that a multi-channel approach offers for reaching new customers and offering new services, but also because each channel can have spillover effects that result in increased purchases and reduced costs in the other channel (Ward 2001).
Towards a New Framework for Click and Mortar Firms

Importantly, many of the same theories that have been used in the past to predict the dominance of Internet firms over traditional ones can be applied to help understand the dynamics of click and mortar e-commerce approaches. Classic theories of competitive strategy emphasize the importance of exploiting inter-relationships among various tangible and intangible assets as important sources of synergies that can drive competitive advantage (Porter 1985). These works, along with marketing theories focusing on channel coordination, further point to management strategies that can help bring out the benefits from potential sources of synergy, as well as help to avoid damaging channel conflict (Stern and Ansary 1992; Friedman and Furey 1999). Information systems research has a long history of emphasizing how electronic networks can be used to realize competitive advantages, particularly to achieve cost, differentiation and geographic expansion benefits (Porter and Millar 1985; Bakos and Treacy 1986; Johnston and

Vitale 1988). It is a small step to show how these classic competitive advantages can be derived from a successful exploitation of synergies between physical and virtual channels. Click and mortar firms also have an opportunity to avoid one of the most difficult problems facing Internetonly businesses - lack of trust. Here, again, classic transaction cost theories, as well as research in the field of economic sociology, can be brought to bear to shed light on why integration among channels can be a more successful strategy (Granovetter 1985; DiMaggio and Louch 1998; Steinfield and Klein 1999; Steinfield et al. 1999; Steinfield and Whitten 1999). The general framework is depicted in Figure 1, and each topic is elaborated upon below. Figure 1. Sources, Management Requirements, and Benefits of Click and Mortar Synergies

(Adapted from Steinfield, Adelaar and Lai 2002)


Sources of Synergy

Click and mortar firms have a number of potential sources of synergy not necessarily available to pure Internet firms or traditional firms without an e-commerce channel. Among the sources spelled out in classic competitive advantage theory are common infrastructures, common operations, common marketing, and common customers (Porter 1985) (see Figure 1). An example of the use of a common infrastructure is when a firm relies on the same logistics system (warehouses, trucks, etc.) for handling distribution of goods for e-commerce activities as well as for delivery to its own retail outlets. Another critical infrastructure that can be shared is the IT infrastructure. Recent empirical work suggests, in fact, that the more firms build their ecommerce capability in conjunction with an existing IT infrastructure the more likely they will see performance improvements (Zhu and Kraemer 2002). An order processing system shared between e-commerce and physical channels is a good example of a common operation as a source of synergy. This can enable, for example, improved tracking of customers' movements between channels, in addition to potential cost savings. E-commerce and physical channels may also share common marketing and sales assets, such as a common product catalogue, a sales force that understands the products and customer needs and directs potential buyers to each channel, or advertisements and promotions that draw attention to both channels. Finally, an alternative perspective on the cannibalization issue is the fact that e-commerce and physical outlets in click and mortar firms often target the same potential buyers. This enables a click and mortar firm to be able to meet customers' needs for both convenience and immediacy, enhancing

customer service and improving retention. Hence, to the extent that virtual and physical channels are able to share these various assets in a coordinated fashion, a variety of benefits can emerge. Another way to view these various sources of synergy is represented in the many forms of complementary assets that click and mortar firms possess, that purely Internet firms may not. Established firms have existing supplier and distributor relationships, experience in the market, a customer base, and other complementary assets that can enable them to take better advantage of an innovation like e-commerce (Teece 1986; Afuah and Tucci 2001).
Avoiding Channel Conflict

As noted earlier, firms with multiple channels may fall prey to channel conflict. Channel conflicts can occur when the alternative means of reaching customers (e.g. a Web-based store) implicitly or explicitly competes with or bypasses the existing physical channels, and are nothing new to e-commerce (Stern and Ansary 1992; Balasubramanian 1998). One danger is that these conflicts result in one channel simply cannibalizing sales from the other. Perceived threats caused by competition and conflict across channels can have other harmful effects, including limited cooperation across the channels, confusion when customers attempt to engage in transactions using the two uncoordinated channels, and even sabotage of one channel by the other (Friedman and Furey 1999; Useem 1999; Ward 2001). Management must act to diffuse conflicts and ensure the necessary alignment of goals, coordination and control, and development of capabilities to achieve synergy benefits (Porter 1985; Stern and Ansary 1992; Friedman and Furey 1999) (Figure 1). Aligning goals across physical and virtual channels implies that all employees involved realize that the parent firm benefits from sales originating in either channel. One problem faced by click and mortar firms is that the contributions made by the Internet channel may be intangible and hard to measure (Tedeschi 2001). Managers have to be open to such intangible benefits and not, for example, evaluate e-commerce divisions purely on the basis of their own sales and profitability. Moreover, there must be agreement on what types of customers (e.g. existing vs. new) are targeted by the new e-commerce channel. Coordination and control mechanisms include interoperability across channels so that customers may move freely between channels, the use of each channel to promote the other, incentives encouraging cross-channel cooperation, and coordinating customer services to ensure that the unique strengths of each channel are utilized (Steinfield et al. 2001a; Steinfield et al. 2002). In many situations, traditional firms may lack important competencies needed to achieve synergy benefits with e-commerce. For example, traditional firms may lack Web development skills or logistics skills needed to serve distant markets. In these situations, alliances may be more useful than attempting to develop a virtual channel in-house.
Potential Benefits of an Integrated Channel Approach

The final component of the framework in Figure 1 focuses on the potential benefits that click and mortar firms may achieve when synergies between the Web and existing physical assets are exploited. Four broad areas of benefit include: 1) lower costs, 2) increased differentiation through value-added services, 3) improved trust, and 4) geographic and product market extension. We elaborate on these potential benefits from physical and virtual integration below. Lower costs. Cost savings may occur in a number of areas, including labor, inventory, marketing/promotion, and distribution. Labor savings result when costs are switched to consumers for such activities as, looking up product information, filling out forms, and relying

on online technical assistance for after-sales service. Inventory savings arise when firms find that they can avoid having to stock infrequently purchased goods at local outlets, while still offering the full range of choices to consumers via the Internet. Marketing and promotion efficiencies are garnered when each channel is used to inform consumers about services and products available in the other channel. Delivery savings may result from using the physical outlet as the pick-up location for online purchases, or as the initiation point for local deliveries. Differentiation through value-added services. Physical and virtual channel synergies can be exploited at various stages in a transaction in order to help differentiate products and add value. Examples of pre-purchase services include various online information aids to help assess needs and select appropriate targets, or, conversely, opportunities in the physical environment to test out products. Examples of purchase services include ordering, customization, and reservation services, as well as easy access to complementary products and services. Post-purchase services include online account management, social community support, loyalty programs and various after-sales activities that may be provided either online or in the physical store. Typical opportunities are in the areas of installation, repair, service reminders, and training. Although many of these value-added services are potentially available to single-channel vendors, combined deployment of such services (e.g. online purchase of computer with in-store repair or training) can enhance differentiation and lock-in effects (Shapiro and Varian 1999). Improved trust. Three reasons for improved trust, relative to pure Internet firms, derive from the physical presence of click and mortar firms, including reduced consumer risk, affiliation with and embeddedness in recognized local social and business networks, and the ability to leverage brand awareness. Lower perceived risk results from the fact that there is an accessible location to which goods can be returned or complaints can be registered (Tedeschi 1999b). Affiliation and embeddedness in a variety of social networks can facilitate the substitution of social and reputational governance for expensive contracts or legal fees (Granovetter 1985). DiMaggio and Louch (1998) show that, particularly for risky transactions, consumers are likely to rely on social ties as a governance mechanism. Such ties are more likely to exist between geographically proximate buyers and sellers, suggesting that there may indeed be a preference for doing business with firms that are already physically present in the local market. Finally, marketing theorists have long recognized the power of branding as a means of building consumer confidence and trust in a product (Kotler 1999). Established firms are able to leverage their familiar name to make it easier for consumers to find and trust their affiliated online services (Coates 1998). Geographic and product market extension. Adding a virtual channel can help extend the reach of a firm beyond its traditional physical outlets, addressing new geographic markets, new product markets, and new types of buyers. Those in other geographic markets may be new or former customers who have moved away (Steinfield et al. 2001a). Virtual channels can also extend the product scope and product depth of physical channels by enabling firms to offer new products that they do not have to physically stock locally. Moreover, firms may add new revenue generating information services online that would not be feasible to offer in physical outlets. Finally, the Internet may help reach customers within an existing market who may not have visited the physical outlet, but are otherwise attracted to the virtual channel due to its special characteristics (Anderson, Day, and Rangan 1997)
Exploring the Framework with a Click and Mortar Case

To date little empirical research has been conducted that specifically examines click and mortar business models. One exception is a series of case studies undertaken in the Netherlands and the

United States, as part of an analysis of how firms can best leverage their existing physical presence when they develop online channels (Steinfield et al. 2001a; Steinfield et al. 2001b; Steinfield et al. 2002). In these analyses, researchers selected firms that were explicitly following a click and mortar approach, and interviewed business and e-commerce managers. Their goal was to understand better the sources of synergy, management strategies, and benefits from ecommerce and traditional business integration experienced by these firms. Here we illustrate the explanatory power of the framework through one of the cases reported in Steinfield et al. (2002). The firm is one of the largest volume specialty retailers of consumer electronics, personal computers, entertainment software, and appliances in the U.S. with over 400 stores. After several less than successful experiences with a Web channel, the firm recently rolled out a new ecommerce site that featured both a deeper selection of products and a tighter integration with its traditional physical stores. The click and mortar design strategy enables the firm to benefit from a range of synergies between their virtual and physical channels. The goal is to be "channel agnostic," letting customers choose whatever channel or combination of channels best suits their needs. A number of sources of synergy are available to the firm. One key source is the firm's exploitation of a common IT infrastructure between their e-commerce and store channels. They accomplished this by tightly integrating the Internet operations with existing databases and other legacy systems. The firm also consciously capitalized on common operations, especially in terms of purchasing, inventory management, and order processing. That common marketing and common buyers were a source of synergy is evident in their emphasis on replicating and leveraging the store brand in their online services. Among the services enabled by the tight IT integration, is the ability of online customers to check out the inventory of individual stores, so that they might order merchandise for immediate pickup in the nearest store. In order to achieve this value-added service and derive the differentiation benefit from it, the service had to be supported by a change in business processes that ensured interoperability across the two channels. For example, if only one or two items desired by an online purchaser are in stock, in-store customers might claim them by the time the Web customer arrived for pickup. To avoid this situation, store personnel must be notified that an online customer has requested an item for pickup. Then employees remove the item from the shelf, and send an email confirmation to the online customer. In order to ensure that stores cooperated with this new capability, management incentives were also considered to avoid or diffuse potential channel conflicts. In particular, the company included performance in fulfilling online orders as one of the parameters influencing store manager compensation. This seemingly simple service thus reflects the main components of the framework. Several sources of synergy come into play. First, the firm built the service by tying the Internet to a common, integrated IT infrastructure. Second, it supports the service by utilizing existing store inventory that was warehoused and delivered using common logistics infrastructure. Third, the shoppers can provide payment that is credited to the store, using existing operational systems such as credit card verification and approval systems already in place. Finally, the service targets common buyers - that is people living near existing physical stores. Management initiatives to achieve synergy and avoid conflict are also evident in this simple example. The online service depended upon the cooperation of store personnel, reflecting a need for goal alignment. This was achieved by developing a service that brought traffic into the store, rather than simply bypassing it altogether. Moreover, management recognized that the Internet could assist in pre-purchase activities, even if the eventual sale was consummated in the store.

They did not require the e-commerce channel to generate its own profits. Additionally, they attended to the need for explicit coordination and control by developing a business process that ensured cross-channel interoperability. Finally, they created an incentive system that rewarded store personnel for their cooperation with the e-commerce channel. Finally, the benefits of this one service are also captured well by the framework. Consider the cost savings in labor that stores accrue when customers search for products online, conduct research, order the product, and even make payment ahead of time, all without needing the assistance of a single employee. In terms of differentiation, this represents a pre-purchase and purchase service that would be difficult for a non-click and mortar firm to offer. Because of the tie-in to the local store, which is also part of a well-known national chain, customers perceive much lower risk than they would if ordering from a less familiar, non-local Internet business. The tight integration between the e-commerce and existing retail infrastructure offers this firm many other advantages that are derived from the same sources of synergy and enabled by many of the same management strategies. For example, because of their integrated approach, customers who order products online with home delivery are able to return products to their local store, enhancing trust and reducing perceived risk. Moreover, the integration of IT systems enabled store employees to access customer and order data to improve customer assistance, such as finding complementary goods. Channel cooperation extends in both directions. In-store customers who are unable to find a product on the shelf can search the firm's online site through kiosks available in the store. Because of the integrated approach to marketing, the firm is also able to undertake promotional campaigns, such as sales and contests that customers can access in the store and on the Web. In addition, the Web channel also enabled value added services geared towards improving customer relationship management. In particular, the Web site allowed customers to store items under consideration in a 'Think About' folder. This provides useful marketing information to the firm, as they can provide more targeted promotions related to desired products.
Discussion

The click and mortar case described above provides a concrete illustration of the various components in the framework outlined in Figure 1. Other cases reported in Steinfield et al. (2001a) and Steinfield et al. (2002) provide many other examples of the synergies between physical and e-commerce channels. The model directs our attention to a number of potential variables that may influence the success of click and mortar e-commerce. In this section, we illustrate the heuristic value of the framework by developing a few illustrative propositions to guide future research. First, central to the model is the expectation that firms, which tightly couple e-commerce with existing assets in their traditional business infrastructures, are likely to experience more benefits from e-commerce than firms that do not. Hence, a basic proposition is: P1: The tighter the integration between a firm's e-commerce and physical channels, the more the firm will benefit from its e-commerce investment. A number of related propositions in this area would examine particular forms of integration for particular types of outcomes. Moreover, using the notion from complementary asset literature (Teece 1986), we would expect that the more capable the existing infrastructure from which synergies are sought, the more powerful the potential synergies. For example, following the research on IT integration by Zhu and Kraemer (2002), we might expect:

P1a: The more capable a firm's existing IT infrastructure, the more likely it will experience benefits from integration with its e-commerce channels. The framework also has the potential to elicit counter-intuitive expectations. For example, the focus on common buyers as a source of synergy suggests that firms should not necessarily use ecommerce primarily to extend their reach into new markets. Rather, it positions e-commerce as a tool for enhancing existing customer relations, yielding greater retention as a benefit. This relationship can be expressed in the following proposition: P1b: The more a click and mortar firm targets existing customers with its e-commerce channel, the greater the effect of e-commerce on customer retention. Of course, to subject this basic proposition to an empirical test, researchers will have to focus on measurable outcomes of e-commerce investment. This raises a number of issues, however, stemming from the difficulty in measuring outcomes due to e-commerce in channel-integrated firms. For example, if much of the use of the e-commerce channel is to support in-store sales and enhance in-store traffic, as in the case mentioned above, then simple online sales data will vastly underestimate the contributions made by e-commerce. New metrics will have to be developed to better estimate the contributory role played by e-commerce in such situations, perhaps requiring new forms of data capture at the point of sale (Straub et al, 2002). Another important set of propositions embedded in the framework relates to the role of management interventions. In particular, the model posits that such interventions mediate between sources of synergy and eventual payoffs from integration. For example: P2a: The more that traditional firm employees stand to gain from e-commerce generated activity, the less the likelihood of channel conflicts, and the greater the likelihood that a firm will benefit from its e-commerce investments. P2b: The easier it is for a consumer to move between e-commerce and traditional channels throughout the stages of a transaction, the greater the effect of e-commerce on customer relations and customer retention. These are only a small subset of the many expected relationships implicit in the framework. Many specific hypotheses can be tested, focusing on such issues as the effect of channel integration on various outcome measures such as costs, revenue from value-added services, perceived quality of service, trust, and penetration into new geographic and product markets.
Conclusions

In this paper, a conceptual framework describing the dynamics of click and mortar businesses is provided. It directs our attention to the many potential sources of synergy that are available to firms that choose to integrate e-commerce with their existing traditional forms of business. It further emphasizes the many actions that firms can take to minimize channel conflicts and help achieve the benefits of synergy. Finally, it describes four categories of synergy-related benefits from the integration of e-commerce with traditional businesses, including potential cost savings, gains due to enhanced differentiation, improved trust, and potential extensions into new markets. The utility of the framework was demonstrated using the case of an electronics retailer that has chosen to tightly integrate its large chain of retail stores with its Web-based electronic store. The framework was also used to develop a series of propositions that can guide future empirical research. The discussion points to the need to develop new types of metrics to better judge the contributions of e-commerce channels, and provides some guidance for future empirical research

that can test whether, and under what conditions, integrated click and mortar business models work well.
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Acknowledgments

I am grateful to the Telematica Instituut in Enschede, Netherlands, for its generous support of the PLACE (Physical presence and Location Aspects of e-Commerce Environments) project, on which this paper is based. More information about PLACE is available at http://place.telin.nl/. I would especially like to acknowledge the work of Thomas Adelaar, a doctoral student at Michigan State University, who worked on the original case described in this paper, and contributed greatly to the conceptual framework on which the paper is based.
About the Authors

Charles Steinfield (Ph.D. Annenberg School for Communication, University of Southern California) is a Professor of Telecommunication at Michigan State University. His research interests center on the impacts of new communication technologies in the workplace. He has conducted empirical research on computer mediated communication in organizations, distributed team collaboration over networks, and electronic commerce impacts on buyer-seller relationships.

E-Commerce Applications: Issues and Prospects


Various applications of e-commerce are continually affecting trends and prospects for business over the Internet, including e-banking, e-tailing and online publishing/online retailing. A more developed and mature e-banking environment plays an important role in e-commerce by encouraging a shift from traditional modes of payment (i.e., cash, checks or any form of paperbased legal tender) to electronic alternatives (such as e-payment systems), thereby closing the ecommerce loop. a) Benefits of e-Commerce Expanded Geographical Reach Expanded Customer Base Increase Visibility through Search Engine Marketing Provide Customers valuable information about your business Available 24/7/365 - Never Close Build Customer Loyalty Reduction of Marketing and Advertising Costs Collection of Customer Data b) Basic Benefits of e Business e-Commerce o increase sales - this is the first thing that people consider
when dealing w e-commerce o decreasing costs o increase profits o understanding that profits is not the same as sales o Expands the size of the market from regional to national or national to international o Contract the market

o reach a narrow market o target market segmentation allows you to focus on a more select group of customers o and therefore have a competitive advantages in satisfying them

[edit] What are the existing practices in developing countries with respect to buying and paying online?
In most developing countries, the payment schemes available for online transactions are the following: A. Traditional Payment Methods
Cash on delivery. Many online transactions only involve submitting purchase orders online. Payment is by cash upon the delivery of the physical goods. Bank payments. After ordering goods online, payment is made by depositing cash into the bank account of the company from which the goods were ordered. Delivery is likewise done the conventional way. Innovations affecting consumers, include credit and debit cards, automated teller machines (ATMs), stored value cards, and e-banking. Innovations enabling online commerce are e-cash, e-checks, smart cards, and encrypted credit cards. These payment methods are not too popular in developing countries. They are employed by a few large companies in specific secured channels on a transaction basis. Innovations affecting companies pertain to payment mechanisms that banks provide their clients, including inter-bank transfers through automated clearing houses allowing payment by direct deposit.

B. Electronic Payment Methods


[edit] What is an electronic payment system? Why is it important?


An electronic payment system (EPS) is a system of financial exchange between buyers and sellers in the online environment that is facilitated by a digital financial instrument (such as encrypted credit card numbers, electronic checks, or digital cash) backed by a bank, an intermediary, or by legal tender. EPS plays an important role in e-commerce because it closes the e-commerce loop. In developing countries, the underdeveloped electronic payments system is a serious impediment to the growth of e-commerce. In these countries, entrepreneurs are not able to accept credit card payments over the Internet due to legal and business concerns. The primary issue is transaction security. The absence or inadequacy of legal infrastructures governing the operation of e-payments is also a concern. Hence, banks with e-banking operations employ service agreements between themselves and their clients. The relatively undeveloped credit card industry in many developing countries is also a barrier to e-commerce. Only a small segment of the population can buy goods and services over the Internet due to the small credit card market base. There is also the problem of the requirement of

explicit consent (i.e., a signature) by a card owner before a transaction is considered valid-a requirement that does not exist in the U.S. and in other developed countries. What is the confidence level of consumers in the use of an EPS? Many developing countries are still cash-based economies. Cash is the preferred mode of payment not only on account of security but also because of anonymity, which is useful for tax evasion purposes or keeping secret what ones money is being spent on. For other countries, security concerns have a lot to do with a lack of a legal framework for adjudicating fraud and the uncertainty of the legal limit on the liability associated with a lost or stolen credit card. In sum, among the relevant issues that need to be resolved with respect to EPS are: consumer protection from fraud through efficiency in record-keeping; transaction privacy and safety, competitive payment services to ensure equal access to all consumers, and the right to choice of institutions and payment methods. Legal frameworks in developing countries should also begin to recognize electronic transactions and payment schemes. What is e-banking? E-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.
Box 7. Payment Methods and Security Concerns: The Case of China

In China, while banks issue credit cards and while many use debit cards to draw directly from their respective bank accounts, very few people use their credit cards for online payment. Cashon-delivery is still the most popular mode of e-commerce payment. Nonetheless, online payment is gaining popularity because of the emergence of Chinapay and Cyber Beijing, which offer a city-wide online payment system. What is the status of e-banking in developing countries? E-banking in developing countries is in the early stages of development. Most banking in developing countries is still done the conventional way. However, there is an increasing growth of online banking, indicating a promising future for online banking in these countries. Below is a broad picture of e-banking in three ASEAN countries. The Philippine Experience In the Philippines, Citibank, Bank of the Philippine Islands (BPI), Philippine National Bank, and other large banks pioneered e-banking in the early 1980s. Interbank networks in the country like Megalink, Bancnet, and BPI Expressnet were among the earliest and biggest starters of ATM (Automated Teller Machines) technology. BPI launched its BPI Express Online in January 2000. The most common online financial services include deposits, fund transfers, applications for new accounts, Stop Payment on issued checks, housing and auto loans, credit cards, and remittances. The Singapore Experience In Singapore, more than 28% of Internet users visited e-banking sites in May 2001. Research by NetValue (an Internet measurement company) shows that while the number of people engaging in online banking in Singapore has increased, the average time spent at sites decreased by approximately four minutes from March 2001 to May 2001. This decline can be attributed to the

fact that more visitors spend time completing transactions, which take less time than browsing different sites. According to the survey, two out of three visitors make a transaction. All major banks in Singapore have an Internet presence. They offer a wide range of products directly to consumers through proprietary Internet sites. These banks have shifted from an initial focus on retail-banking to SME and corporate banking products and services. Among the products offered are:
Fund transfer and payment systems; Integrated B2B e-commerce product, involving product selection, purchase order, invoice generation and payment; Securities placement and underwriting and capital market activities; Securities trading; and Retail banking.

The Malaysian Experience E-banking in Malaysia emerged in 1981 with the introduction of ATMs. This was followed by tele-banking in the early 1990s where telecommunications devices were connected to an automated system through the use of Automated Voice Response (AVR) technology. Then came PC banking or desktop banking using proprietary software, which was more popular among corporate customers than retail customers. On June 1, 2000, the Malaysian Bank formally allowed local commercial banks to offer Internet banking services. On June 15, 2000, Maybank (www.maybank2U.com), one of the largest banks in Malaysia, launched the countrys first Internet banking services. The bank employs 128-bit encryption technology to secure its transactions. Other local banks in Malaysia offering ebanking services are Southern Bank, Hong Leong Bank, HSBC Bank, Multi-Purpose Bank, Phileo Allied Bank and RHB Bank. Banks that offer WAP or Mobile banking are OCBC Bank, Phileo Allied Bank and United Overseas Bank. The most common e-banking services include banking inquiry functions, bill payments, credit card payments, fund transfers, share investing, insurance, travel, electronic shopping, and other basic banking services.37 What market factors, obstacles, problems and issues are affecting the growth of e-banking in developing countries? Human tellers and automated teller machines continue to be the banking channels of choice in developing countries. Only a small number of banks employ Internet banking. Among the middle- and high-income people in Asia questioned in a McKinsey survey, only 2.6% reported banking over the Internet in 2000. In India, Indonesia, and Thailand, the figure was as low as 1%; in Singapore and South Korea, it ranged from 5% to 6%. In general, Internet banking accounted for less than 0.1% of these customers banking transactions, as it did in 1999. The Internet is more commonly used for opening new accounts but the numbers are negligible as less than 0.3% of respondents used it for that purpose, except in China and the Philippines where the figures climbed to 0.7 and 1.0%, respectively. This slow uptake cannot be attributed to limited access to the Internet since 42% of respondents said they had access to computers and 7% said they had access to the Internet. The chief obstacle in Asia and throughout emerging markets is security. This is the main reason for not opening online banking or investment accounts. Apparently, there is also a preference for personal contact with banks.

Access to high-quality products is also a concern. Most Asian banks are in the early stages of Internet banking services, and many of the services are very basic. What are the trends and prospects for e-banking in these countries? There is a potential for increased uptake of e-banking in Asia. Respondents of the McKinsey survey gave the following indications: 1. Lead users: 38% of respondents indicated their intention to open an online account in the near future. These lead users undertake one-third more transactions a month than do other users, and they tend to employ all banking channels more often. 2. Followers: An additional 20% showed an inclination to eventually open an online account, if their primary institution were to offer it and if there would be no additional bank charges. 3. Rejecters: 42% (compared to the aggregate figure of 58% for lead users and followers) indicated no interest in or an aversion to Internet banking. It is important to note that these respondents also preferred consolidation and simplicity, i.e., owning fewer banking products and dealing with fewer financial institutions. Less than 13% of the lead users and followers indicated some interest in conducting complex activities over the Internet, such as trading securities or applying for insurance, credit cards, and loans. About a third of lead users and followers showed an inclination to undertake only the basic banking functions, like ascertaining account balances and transferring money between accounts, over the Internet. 38

[edit] What is e-tailing?


E-tailing (or electronic retailing) is the selling of retail goods on the Internet. It is the most common form of business-to-consumer (B2C) transaction.
Box 8. E-Tailing: Pioneering Trends in E-Commerce

The year 1997 is considered the first big year for e-tailing. This was when Dell Computer recorded multimillion dollar orders taken at its Web site. Also, the success of Amazon.com (which opened its virtual doors in 1996) encouraged Barnes & Noble to open an e-tail site. Security concerns over taking purchase orders over the Internet gradually receded. In the same year, Auto-by-Tel sold its millionth car over the Web, and CommerceNet/Nielsen Media recorded that 10 million people had made purchases on the Web. What are the trends and prospects for e-tailing? Jupiter projects that e-tailing will grow to $37 billion by 2002. Another estimate is that the online market will grow 45% in 2001, reaching $65 billion. Profitability will vary sharply between Web-based, catalog-based and store-based retailers. There was also a marked reduction in customer acquisition costs for all online retailers from an average of $38 in 1999 to $29 in 2000. An e-retail study conducted by Retail Forward showed that eight of its top 10 e-retailers 40 were multi-channel-that is, they do not rely on online selling alone. Figure 7 shows the top 10 e-tailers by revenues generated online for the year 2001. Figure 7. Top 10 E-Retailers 41

This image is available under the terms of GNU Free Documentation License and Creative Commons Attribution License 2.5 In addition, a study by the Boston Consulting Group and Shop.org revealed that the multichannel retail market in the U.S. expanded by 72% from 1999 to 2002, vis-vis a compounded annual growth rate of 67.8% for the total online market for the years 1999-2002.

[edit] What is online publishing? What are its most common applications?
Online publishing is the process of using computer and specific types of software to combine text and graphics to produce Web-based documents such as newsletters, online magazines and databases, brochures and other promotional materials, books, and the like, with the Internet as a medium for publication. What are the benefits and advantages of online publishing to business? Among the benefits of using online media are low-cost universal access, the independence of time and place, and ease of distribution. These are the reasons why the Internet is regarded as an effective marketing outreach medium and is often used to enhance information service. What are the problems and issues in online publishing? The problems in online publishing can be grouped into two categories: management challenges and public policy issues. There are two major management issues: The profit question, which seeks to address how an online presence can be turned into a profitable one and what kind of business model would result in the most revenue; and

The measurement issue, which pertains to the effectiveness of a Web site and the fairness of charges to advertisers. The most common public policy issues have to do with copyright protection and censorship. Many publishers are prevented from publishing online because of inadequate copyright protection. An important question to be addressed is: How can existing copyright protections in the print environment be mapped onto the online environment? Most of the solutions are technological rather than legal. The more common technological solutions include encryption for paid subscribers, and information usage meters on add-in circuit boards and sophisticated document headers that monitor the frequency and manner by which text is viewed and used. In online marketing, there is the problem of unsolicited commercial e-mail or spam mail. Junk e-mail is not just annoying; it is also costly. Aside from displacing normal and useful e-mail, the major reason why spam mail is a big issue in online marketing is that significant costs are shifted from the sender of such mail to the recipient. Sending bulk junk e-mail is a lot cheaper compared to receiving the same. Junk e-mail consumes bandwidth (which an ISP purchases), making Internet access clients slower and thereby increasing the cost of Internet use.42

Is E-commerce Set to Replace the Conventional Intermediary?


By Rafay Bin Ali | 30 Oct 2004 E-commerce has created new channels and brought the buyers and sellers closer. This scenario presents complex consquences for intermediaries such as retailers. Would e-commerce eventually replace the conventional third-parties is to be seen and is the focus of this article.
Top of Form

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Introduction
Businesses that have the means to process transactions and fulfill orders over the web are ecommerce businesses. E-commerce is not a new trend. Businesses have long performed transactions electronically using Electronic Data Exchange (EDI) mechanisms. However, the potential of Internet, most notably the WWW, as a medium to carry out e-commerce has just begun to be realized. For once, even SMEs stand a chance to compete with giant corporations. Specifically, e-commerce replaces the manual business processes with their automated electronic equivalents to accelerate ordering, delivery and payment procedures. This electronic paradigm has saved businesses billions in operational and inventory costs. For consumers, web acts as a cost-effective information arbiter. Much like the traditional business environment characterized by industries and markets, e-commerce also comes in various flavors or models: auctions, storefront, horizontal and vertical portals, bartering, online trading, entertainment and automotive sales, click-and-mortar businesses. If we look closely at each of these models we realize that ecommerce has brought buyers and sellers closer by directly connecting them and, in the process,

bypassing intermediaries such as distribution outlets, brokers, dealers and agents. Since ecommerce over the Internet is a relatively newer phenomenon, there are still some misunderstandings as to its role. One such misunderstanding is the role of the traditional intermediary or the middleman in presence of e-commerce. The role of an intermediary or the middleman has been well defined in a traditional business environment. An intermediary, for our purposes, is any person or agency that acts on behalf of both the buyers and the sellers (manufacturer) so that the collective benefits of all the parties are maximized. As such, real estate agents, travel agents, wholesalers, retailers are all intermediaries. Take the example of a retail outlet. Retail outlets are the last stage in the distribution channel. Their functions were well defined and ranged from providing information to concluding transactions. However, with the advent of WWW as a global platform for pursuing business activities and consequently the emergence of e-commerce has provided the customers a cheaper alternative to retail outlets and other forms of intermediaries. Customers have discovered that an online purchase is often more lucrative to their wallets and fits well within their monthly budget. Furthermore, the Internet fulfills the consumers need for reliable and timely access to information in a more cost-effective manner than a middleman does; the cost of obtaining information using middlemen is one of the reasons for a products high price. With this scenario in mind, are we about to witness an end to the traditional intermediary? The answer would be an equivocal no! Most of the newbies mistake e-commerce as a virtual marketplace. However, we need to think of it in terms of a tool that aids in streamlining business processes to reduce transaction costs, benefits of which are ultimately passed on to the consumers. The purpose is to improve productivity, rather than replace the traditional forms of agents. There are various reasons for this:
Limited human contact

Traditional intermediaries survive by maintaining close relationships with their customers. They know that competing agents- because of the relatively homogeneous nature of the product that most of them offer- can easily out-compete them. For example, all travel agencies provide a similar product; it is most often the quality of the customer service that determines the bottom line. Electronic commerce, on the other hand, has substantially removed the human component. This has two implications. First, it is no longer possible to form personal relationships with the consumers. Second, the psychological impact of not knowing the other party involved in the transaction is enough to make even the most ardent supporter of e-commerce think twice before actually placing an order.
Security and privacy

Buyers generally do not trust content from parties that they do not know. And neither should they. Internet has been successfully used as a gateway to propagate malicious viruses and to sabotage online systems. A credit card number sent over the wire can easily be intercepted before it reaches the intended party. The Internet has simplified impersonation and provided an easier and, often less risky means of conning buyers. Identity fraud is all too common on the Internet. The legitimacy of a traditional intermediary, on the other hand, can be questioned and verified.
No centralized control over the Internet

The Internet is publicly owned. Anybody with $35 can purchase a domain name and setup a commercial web site without having to worry about proving credentials. This has become even easier with the emergence of escrow services that make it possible to avoid the cumbersome process of obtaining a merchant account for electronic transactions. From the perspective of small to medium sized enterprises (SMEs), this is a clear advantage. However, this advantage has also been abused to con unsuspecting buyers. According to U.S. FBI, 80 percent of the computer crimes that it investigates involves the Internet. Even though bodies do exist to monitor Internet and countries have amended their consumer rights protection legislation (U.S. has amended its consumer protection rights act to adjust to transactions on the Internet) to safeguard the buyers interests on the Internet, authorities often find it hard to enforce such laws. The root cause for this is not the negligence of law enforcement but the difficulty in imposing such provisions over the Internet, over which no particular country, market, business or agency has sole jurisdiction. In the absence of a 100 percent enforceable law to protect consumers in the cyberspace, intermediaries would be responsible for providing the consumers' access to genuine online merchants.
Costs reduced but for whom?

The minimization of the inventory requirements, paper-less transactions, and automated records keeping are some of the benefits that e-commerce touts of. However, these are all benefits to the businesses. The costs to the consumers, on the other hand, have just changed facets. The cost of purchasing internet connection hours and spending time online in search of information are two of the most consequential examples of both implicit and explicit costs to the consumers.
Web cannot replicate some of the intermediary functions

Web may be a great venue for commercial activities and a source for reaching to the highest number of customers. Nonetheless, there are some functions that simply cannot be performed over the WWW. Take the example of an automobile purchase. Before a buyer actually buys an automobile, he or she needs to test drive it. There are other formalities such as insurance and registration requirements that are much too complex for the average consumer to figure out and should only be handled by trained professionals. Such functions, obviously, cannot be performed online.
Internet, itself, would require technical intermediaries

The Internet is a vast array of computers, networks and nodes interconnected using devices such as routers, bridges and gateways. In a nutshell, it is quite complex to manage. As we travel down further into the digital age, intermediaries would also be required to take on the task of providing technical assistance to the consumers. Additionally, WWW is just a web of sites, some of which are genuine while others are just attempts by con artists to make a quick buck. Thus, eventually there would be a need for technical intermediaries to filter out the junk and provide consumers with access to online merchants that can be trusted. Attempts by IT pioneer in the form of third-party digital certificates and signatures for e-commerce are a step in that direction. It is quite evident that the existence of intermediaries is not threatened by e-commerce. In fact, most of the virtual malls on the web are a form of intermediary anyway: Amazon is a reseller that integrates with several publishers to offer its customers the best deals possible. Rather, it is

the present role of the intermediaries, which is up for a major makeover. The intermediary of the future would be an infomediary who would supply customers with reliable and timely information. We can think of an infomediary as being a traditional intermediarys electronic counterpart. The infomediary would operate by forming numerous partnerships and providing value-added services to its customers. It is the value addition that would actually determine the existence of intermediaries, and not the emergence of e-commerce itself. Infomediaries have already started to make their mark: Yahoo! and Travelocity are examples of the two largest infomediaries on the web today. The intermediaries of the future would also have to switch from advocating for both the buyers and the sellers to watching out more for the customer. As the web matures into a more viable venue for commercial ventures, intermediaries would have to take on the job of cyber patrolling to make the web a safer place. Currently, organizations such as Internet Engineering Task Force (IETF) and ICANN carry out verification of merchants using procedures that are quite inadequate. The intermediaries, in their new role as an infomediary, would have to assume such responsibilities so that trust can be maintained with the customers. Intermediaries would also have to mimic what consumer rights groups and activists have done for the non-wired consumer; they would have to force the governments to adopt new legislation to curb cyber crimes and protect the innocent. The preference of the consumer is probably the best friend of a traditional intermediary. For example, Priceline is an online travel site that promises to offer its customers the best air ticket deal that their money can buy. However, studies by research firms such as the Gartner Group and IDC have shown that most consumers still prefer to deal with a travel agent (an intermediary) rather than to negotiate directly with other travel related entities, such as hotel bookings, car rental and so on. Much of the power of an intermediary comes from the fact that they are closer to the customer than any other entity of the distribution channel. They are aware of the needs and wants of their customers. Thus, most of the times they can accurately forecast the future demand. They are also aware of the customers buying behavior, preferences and spending patterns. At present, while such information gathering remains the sole domain of market research firms, the future would demand infomediaries to also provide such information to the manufacturers. In the end, it is necessary to emphasize that e-commerce would have a significant impact on the nature of the intermediaries. As I have already discussed, there would always be a need for intermediaries. It is just their functions that are up for a change. A phenomenon that can cause change at such a rapid pace is seldom insignificant. As such, only the intermediaries who can successfully tap into the opportunities provided by e-commerce would survive and become infomediaries of the future.

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About the Author


Rafay Bin Ali I am a freelance developer and technical author in Karachi, Pakistan. I am presently a student at Hamdard Institute of Management Sciences, City Campus, Karachi. Email: rafayali@gmail.com Blog: http://rafayali.blogspot.com http://cc.1asphost.com/powerwebdev/index.htm

Web Developer Pakistan Member

How E-Commerce Works


By Ezmeralda Lee, eHow Contributor I want to do this! What's This?

E-commerce Basics
1. E-commerce or electronic commerce works like conventional commerce with the same process of selling and purchasing goods or services for a price. The difference is that goods and services in e-commerce are bought and sold over the Internet using a credit card. Transactions can be done globally 24 hours a day and 7 days a week, unlike conventional commerce. There are no weekly holidays or closing time as with conventional stores.

The Process
2. The merchant showcases the products intended to be sold on a website and specifies the price of each product. The customer logs on to the website, chooses products and adds them to a shopping cart. The customer connects to the transaction server and gives credit card details to purchase the goods. The merchant's transaction server then connects to the credit card processing server to check if the customer has the required funds to pay for the goods and services purchased. Once the processing server approves of the transaction and reports that the customer has funds, it authorizes the transfer of funds from the customer's bank to the bank of the merchant. On receipt of the money, the merchant's server confirms the sale to the customer and the products are delivered to the customer by the merchant.

E-commerce Popularity
3. E-commerce became popular as a method of commerce because it is inexpensive and merchants can avoid overhead costs like commercial space, staff and security systems. The customer avoids the commute to the store and has the convenience of shopping for a variety of products at the click of a mouse. E-commerce transactions are automated and accurate, unlike conventional transactions which suffer the risk of human error. The customer can easily find products using the search option on e-commerce websites.

Choice
4. Comparing prices of different brands of similar products is easy when a customer can access the prices online. The customer can shop online for services as diverse as a car wash to insurance and loans online. The Internet has many quote engines that make it easy for a customer to get a good deal on the services provided by different companies or brands. E- Commerce gives the customer a vast online catalog and the choices of available products and services available are almost infinite.

The Problems with E-commerce


5. E-commerce may look easy because all it takes to set up shop is building a website and listing the products and services on sale. However, the difficult part of ecommerce is attracting customers to the website. The competition on the Internet is fiercer than in conventional commerce.

Conclusion
6. E-commerce replaces conventional physical shopping with a medium that lets users view goods and services from the comfort of home with the convenience of the click of a mouse button.

Read more: How E-Commerce Works | eHow.com http://www.ehow.com/how-does_4613505_how-ecommerceworks.html#ixzz0zRjqtC10

What is e-commerce - Advantages

and Drawbacks!
This article narrates the facts about electronic business, the business over the internet. It throws light on how, both buyers and sellers can benefit from the nature of e-commerce and what are the few disadvantages associated with it.

Enlarge Image Electronic Commerce or e-commerce is the trade of products and services by means of the Internet or other computer networks. Ecommerce follows the same basic principles as traditional commerce that is, buyers and sellers come together to swap commodities for money. But rather than conducting business in the traditional way in shopping stores or through mail order catalogs and telephone operators in e-commerce buyers and sellers transact business over networked computers. E-commerce offers buyers maximum convenience. They can visit the web sites of multiple vendors round the clock a day to compare prices and make purchases, without having to leave their homes or offices from around the globe. In some cases, consumers can immediately obtain a product or service, such as an electronic book, a music file, or computer software, by downloading it over the Internet. For sellers, e-commerce offers a way to cut costs and expand their markets. They do not need to build, staff, or maintain a physical store or print and distribute mail order catalogs. Automated order tracking and billing systems cut additional labor costs, and if the product or service can be downloaded then e-commerce firms have no distribution costs involved. Because the products can be sold sell over the global Internet, sellers have the potential to market their products or services globally and are not limited by the physical location of a store. Internet technologies also permit sellers to track the interests and preferences of their customers with the customers permission and then use this

information to build an ongoing relationship with the customer by customizing products and services to meet the customers needs. E-commerce however has some drawbacks. Consumers are hesitant to buy some products online. Online furniture businesses, for example, have failed for the most part because customers want to test the comfort of an expensive item such as a sofa before they purchase it. Many people also consider shopping a social experience. For instance, they may enjoy going to a store or a shopping mall with friends or family, an experience that they cannot duplicate online. Consumers also need to be reassured that credit card transactions are secure and that their privacy is respected. In the existence of these few disadvantages e-commerce has opened new horizons to versatile the modern age. It puts away time, energies, labor and money. About the Author: William King is the director of All Wholesale UK, Wholesale Pages, Wholesale-Canada and Dropshipping Directory. He has 18 years of experience in the marketing and trading industries and has been helping retailers and startups with their product sourcing, promotion, marketing and supply chain requirements. By William King Introduction to E-Commerce and E-Business Traditional Versus Electronic Commerce | Traditional Commerce | Electronic Commerce | Traditional Commerce Traditional commerce perhaps started before recorded history when our ancestors first decided to specialise their everyday activities. Instead of each family unit having to grow crops, search for food, and make tools, families developed skills in one of these areas and traded some of their production for other needs. It started with bartering, which eventually gave way to the use of currency, making transactions easier to settle. However, the basic mechanisms of trade were the same. Some body created a product or provided a service, which somebody else found valuable, and therefore was willing to 'pay' for it in exchange. Thus, commerce, or doing business, is a Topic Overview

negotiated exchange of valuable products or services between at least two parties and includes all activities that each of the parties undertakes to complete the commercial transaction. Any commercial transaction can be examined from either the buyer's or the seller's viewpoint. These two sides of a commercial transaction are shown in the diagram given below. (a) Buyer's Side of Traditional Commerce Identify specific buying need

Search for products or services that will satisfy the specific need

Select a vendor

Negotiate a purchase transaction, including delivery, logistics, inspection, testing and acceptance

Receive product/ service and make payment

Perform regular product maintenance and make warranty claims.

(b) Seller's Side of Traditional Commerce Conduct market research to identify customer needs

Create product or service that will meet customers' needs

Advertise and promote product or service

Negotiate a sale transaction including delivery logistics, inspection, testing, and acceptance

Dispatch goods and invoice customer

Receive and process customer payments

Provide after-sale support, maintenance, and warranty services. Electronic Commerce (e-commerce) It can be loosely defined as 'doing business electronically'. More rigorously, e-commerce is buying and selling over digital media. It includes electronic trading of physical goods and of intangibles such as information. This encompasses all the trading steps such as online marketing, ordering, payment, and support for delivery. It includes the electronic provision of services, such as after-sales support, as well as electronic support for collaboration between companies, such as collaborative design. A further definition of e-commerce is provided by the European Union website; which defines 'Electronic commerce as a general concept covering any form of business transactions of information exchange executed using information and communication technology, between companies, between companies and their customers, or between companies and public administrations. Electronic commerce includes electronic trading of goods, services and electronic material'.

A Typical Customer Query Interaction in an Ecommerce Activity Some people use the term Internet commerce to mean electronic commerce that specifically uses the Internet as its data transmission medium. E-commerce did not just happen in the last five years. Automobile companies and supermarkets in the western countries have been doing e-commerce for many years; their e-commerce technology is called electronic data interchange (EDI). Airline seats have also been sold using e-commerce systems; and the French have also been using e-commerce since 1983, but they do it in French with a system called Tltel. How do you know which products can be sold more effectively using traditional commerce, and which using electronic commerce? Products that buyers prefer to touch, smell, or examine closely are difficult to sell using e-commerce. For example, customers might be reluctant to buy high fashion garments and perishable food products, if they cannot examine the products closely before agreeing to purchase them. Retail merchants may have long traditional commerce experience in creating store environments that help convince customers to buy. This combination of store design, layout, and product display knowledge is called merchandising. Many salespersons have developed skills that allow them to identify customer needs and find products or services that meet those needs. The art of merchandising and personal selling can be difficult to practice over an electronic link.

However, branded merchandise and products, such as books or music CDs, can be easily sold using ecommerce. Customers are willing to order a book title without examining the specific copy they will receive, because one copy of a new book is identical to other copies of the same book, and because the customer is not concerned about its other qualities such as freshness, or smell. Furthermore, e-commerce also offers the advantage of providing the ability to offer a wider selection of book titles than even the largest physical bookstore; which outweighs the advantage of a traditional bookstore, such as the customer's ability to browse the book. Glossary Internet The Internet is a global matrix of interconnected computer networks using the Internet Protocol (IP) to communicate with each other. For simplicity, the term 'Internet' is used throughout this course to encompass all such data networks and hundreds of applications such as the World Wide Web and e-mail that run on those networks. Typologies of E-commerce Topic Overview | Business-to-Business (B2B) E-commerce | Business-to-Consumer (B2C) E-commerce | | Consumer-to-Consumer (C2C) E-commerce | Consumer-to-Business (C2B) E-commerce |

A common classification of e-commerce is by the nature of business transaction. E-commerce can be business-tobusiness, business-to-consumer, consumer-to-consumer, or consumer-to-business. Business-to-Business (B2B) E-commerce In business-to-business e-commerce, business organisations buy and sell goods and services to and from each other. In this type of e-commerce, buyers can place their requests for new bids for suppliers on their ecommerce sites, and the sellers from all over the world

have a chance to bid. The more buyers there are, the better off sellers will be and vice versa. More buyers means sellers will have more customers for their products and services. More sellers means there will be more choices for buyers. The more sellers, the better it is for all sellers, especially when they can learn from each other or produce complementary products or services. However, if there are too many small buyers and sellers (i.e. buyers and sellers are highly fragmented) a seller may not even know who all the buyers are. Similarly a buyer may not know who all the sellers are either. Each seller has to search through all the e-commerce sites (could be Web pages) of all the buyers to find out what they want, give them the product descriptions that they need, find out about their credit worthiness, complete the buyers' requests for quotation (RFQs), and so on. Thus, the more sellers and buyers and the more fragmented both are, the higher the transaction costs. In order to reduce this transaction cost, we use what is called the 'B2B hubs' also known as B2B intermediaries or B2B exchanges. They provide a central point in the value chain where sellers and buyers can go to find each other (Fig.1.1).

(Please click the image to enlarge)


Fig.1.1 A Business-to-Business Exchange

Top Business-to-Consumer (B2C) E-commerce In business-to-consumer e-commerce, business organisations sell to consumers. These are retailing transactions with individual shoppers. The advantage of this type of e-commerce is that consumers have access to the 'electronic shops' 24 hours everyday. The consumers also do not face any queues anytime they go shopping! Also there is almost no limit to the number of goods that an on-line retailer can display on its 'electronic storefront or mall'. Furthermore, the sellers also get an opportunity to collect rich data about their customers while they are interacting, and use it to

'personalise' service for these customers and, in case of some goods bought electronically, such as music and computer software, they can be received instantaneously. Since the consumers can interact from their home computers, they can shop electronically in the privacy of their homes. Top Consumer-to-Consumer (C2C) E-commerce In consumer-to-consumer e-commerce, consumers sell to other consumers. Since there could be a large number of consumers who want to sell different goods, as well as a large number of consumers who want to buy these goods; the cost to sellers and buyers of finding each other could be exorbitant. The solution is to have an intermediary (as shown in Fig.1.1). Rather than having an exchange in this case, 'electronic auction houses', such as eBay, act as an intermediary among the buyer and seller consumers. Top Consumer-to-Business (C2B) E-commerce This type of e-commerce has started only recently, and in early 2000 was not as developed as B2B, B2C, and C2C e-commerce. In C2B e-commerce, consumers state their price for a product or service, and businesses either accept it or leave it. For example, potential customers give their price for taking a flight and leave it for the airlines to accept it or reject. This contrasts with B2C ecommerce, where a business usually states its price for a product or service and consumers can accept it or reject it.

Traditional Commerce
The traditional commerce is where all three components are physical. In contrast, these components are all digital at the core of electronic commerce, where not only production, but also delivery, payment, and consumption (reading online or processing by a computer program) occur online. The remaining white areas are part of conventional electronic commerce, in which some of the components are digital. For example, products may be physical, but marketing and payment may be conducted online; products may be digital, but payments could be made via checks, or buyers may be reading printouts instead of screen outputs.

The growing use of digital processes for business-to-business transactions and consumer marketing is evident in the figure, which shows that electronic commerce dominates the traditional market. Most of current electronic commerce applications and issues fall within the white areas of figure 1.3, dealing with one aspect on a particular axis, for example, setting up a web store, content digitization, electronic payments, online marketing, and so on. Later chapters in this book also tackle these issues one by one, and consumers are not limited to digital product sellers. However, in each chapter, every effort to analyze an issue in a broader context that includes all three components of a market is made. Therefore, product digitization (of the product axis) is discussed in connection with online consumption and digital marketing (of the process axis) and the role of web store sales representatives (of the player axis). Market activities, from production to consumption, occurring online, bypassing all paper-based transactions and traditional communications media, represent the future of electronic commerce. The Internet becomes not only an alternative communication medium, but a microcosm, or an electronic version, of physical markets with characteristics that are fundamentally different from physical markets. This digital world of business, in which market institutions, agents, and products are becoming "virtual" and native to the Internet, is also at the core of electronic commerce economics. The main difference between the digital world of business and the traditional, physical business world stems from the very nature of digitized products. However, there are many reasons why consumers too will behave differently in a networked market. For example, access to product information via the network using sophisticated computer programs will certainly affect the way consumers compare prices. In turn, efficient shopping will affect product choices, pricing strategies, and competitive efforts among sellers. Business organizations and relationships will also be affected as spatial and temporal limitations of the market are removed and replaced by different considerations of costs, efficiencies, and the mode of interaction on a network. In other words, the market environment, enabled by the open distributed Internet, resembles no other physical market. The physical distance and geographical topology of a market are replaced with network architectures and preference-based market territories. Thus, the objective is to investigate the economic aspects of this newly emerging market of electronic commerce by applying standard economic tools and by evaluating qualitative differences in economic efficiencies and organizational changes.
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