Understanding E-Commerce

Introduction To E-Commerce

Commerce has a long tradition of profiting from innovative systems and tools. As technologies emerge, successful businesses are quick to identify developing opportunities and expand their commercial capabilities. Conducting commerce electronically is no different. For many businesses, new technologies that digitally exchange text and monetary information are effective tools to serve traditional business goals of streamlining services, developing new markets, and creating innovative business opportunities. In addition, they offer the potential to develop types of services that are so innovative and distinct from tradition that they define a new type of commerce. Appropriately named, electronic commerce (E-Commerce) is the synthesis of traditional business practices with computer, information and communication technologies.

Read E-Commerce Definitons and Terms

E-Commerce is not an entirely new type of commerce. It first emerged in the 1960's on private networks, as typically large organizations developed electronic data interchange (EDI) installations and banks implemented electronic funds transfer (EFT). Today, however, E-Commerce is no longer the exclusive domain of large organizations or private networks. The open network Internet and particularly the World Wide Web not only present new commercial potential for large organizations, but also provide a viable entry point for small and medium-sized enterprises (SMEs) into E-Commerce opportunities.

Even though E-Commerce has existed for over thirty years, it has just recently sustained significant growth. In the past 5 years the Internet has transformed from an auxiliary communication medium for academics and large organizations into an entrenched communication medium that spans across nearly all parts of mainstream society. E-Commerce growth is tied directly to these socio-technological changes. The more entrenched the medium becomes, the more users are drawn to it. An increase in users increases markets. As markets expand, more businesses are attracted, which in turn drives the development of better, more stable and secure technology to facilitate E-Commerce. A stable, secure environment for exchanging mission-critical and monetary information only draws more businesses and consumers to the Internet and ensures the growth pattern continues. All these related factors contribute to a burgeoning E-Commerce marketplace that should continue to grow well into the new millennium.

Only now is it becoming apparent how large the potential for E-Commerce will be in the next few years. With E-Commerce prospects continuing to improve, most large corporations have already developed preliminary E-Commerce strategies. Although many SMEs are not following this trend of large corporations, others have found that a modest investment in a simple Web site can develop into a commitment to E-Commerce as a major component of the business plan. At this stage of development, E-Commerce is not an essential operation for every type of SME, but in the near future it may become standard for many.

Definition

There does not exist a simple definition of E-Commerce that adequately describes the coverage of its operations, functions and underlying technologies. One common view is:

E-Commerce is online shopping via the Internet.

Although this is correct, online shopping is only one of many types of E-Commerce activities. In broader terms:

E-Commerce is any commercial activity conducted electronically, particularly via private or open networks, such as the Internet.

The key point of this definition is that E-Commerce is a confluence of business operations with electronic and network technologies. Telephony and non-networked technologies such as CD-ROM media may integrate into operations, but the core of E-Commerce is network technologies and especially open networks such as the Internet.

E-Commerce Business Operations

By virtue of its similarities, the scope of operations for E-Commerce is nearly as broad as traditional commerce. E-Commerce includes both traditional activities (e.g. providing product information) and new activities (e.g. conducting online retail in virtual malls, publishing digital information). Some of the common operations that define E-Commerce are specific business-to-business and business-to-customer interactions, such as:

Information

• exchange
• Goods or services trading
• Sales promotion and advertising
• Online digital content delivery
• Electronic funds transfers and transaction processing
• Electronic share trading
• Electronic bills of lading processing
• Collaborative work interaction
• Manufacturing management
• Accounts settlement
• Online sourcing
• Public procurement
• Direct consumer marketing
• Inventory management
• Post-sales service
• Commercial auctions.

Although every E-Commerce implementation will differ, most SMEs focus operations on:

• Product promotion via online catalogues
• Transaction processing (exchanging digitized monetary information)
• Customer Support.

E-Commerce conducted over the Internet differs from typical commercial activity in that it is influenced by the unique characteristics of the medium itself. In contrast to print media, E-Commerce is dynamic, allowing users to interact with the commercial site, send comments, and even define the scope of a document. Unlike person-to-person commerce, E-Commerce allows for a controlled interaction between vendorand potential purchaser, where the vendor may strategically direct the customer through a series of options and processes. E-Commerce also differs from traditional commerce by its boundless relation to time and space. Interaction is not restricted to normal working hours or geopolitical borders. There is potential to conduct business with other merchants and consumers around the world in different time zones, 7 days a week, 24 hours a day.

Benefits

In the short-term, entry into E-Commerce may offer a competitive advantage over slower to act competitors. The market for E-Commerce is growing, as more consumers and businesses gain Internet access and transaction processing technologies improve security. Companies that establish an operation today, still in the early stages of Internet based E-Commerce, will have a fuller understanding of the issues and be better prepared to capitalize on emerging technologies when E-Commerce markets open up in the next few years.

The benefits of E-Commerce to a small business may include capabilities to:

• Extend the range of sales territory
• Streamline communication to suppliers and clients
• Expand reach to new clients
• Improve service to existing clients
• Reduce paperwork and time spent on correspondence
• Track customer satisfaction
• Expedite billing
• Improve collaboration on work projects
• Expand markets beyond geographical, national boundaries
• Leverage legacy data
• Improve inventory control, order processing
• Establish position in emerging E-Commerce marketplace
• Lower costs of overhead
• Realize economies of scale by increasing sales volume to new markets
• Monitor competition and industry trends
• Improve or expand product lines - locate new suppliers, products that could be included in catalogue.

Management of expectations

How does it integrate with traditional services?

As E-Commerce matures and more traditional businesses enter the electronic marketplace, it will become difficult to distinguish the E-Commerce merchant from traditional merchant.

Although some firms operate exclusively as E-Commerce merchants, it appears that the greatest opportunities are for established firms that venture into E-Commerce as a means to refine existing business processes and gain new customers.

E-Commerce may complement or replace traditional commercial activities, depending upon the industry and the functions. Because it is both a threat and an opportunity for various industries, it is worthwhile to:

1. Study how E-Commerce can integrate into operations. Determine needs and capabilities. E-Commerce operations may shadow traditional operations to provide redundant services such as product information distribution.
2. Develop an E-Commerce strategy into the business and marketing plans. Understanding how an E-Commerce system will strategically fit with the firm's existing operations will help to allocate the management and financial resources necessary for it to be a success. In the long-run, there have to be resources to set-up and sustain a system, making it work best for the type of operation that will be managed.
3. Monitor competitors, suppliers, and customers' movements into E-Commerce. Special attention to their capabilities will help determine areas of E-Commerce that need development.
4. Establish a consistent operations review process. E-Commerce technology and operations are constantly evolving. Changes in technology frequently introduce opportunities to refine or create new services.

Barriers to Business and Consumer Target Markets

Business-to-business E-Commerce presently represents the bulk of commercial volume over the Internet, although business-to-consumer traffic is growing and has the potential to become an even larger market. The primary reason why business-to-consumer E-Commerce has not kept pace is that the Internet is still not as established in the home as it is in the office. Many businesses have invested in Internet access technologies, are online and ready to expand their commercial capabilities into this emerging marketplace. Consumers should come online as the costs of Internet access decrease, data throughput increases and Internet connectivity becomes as simple to initiate and commonplace in the home as television and telephones.

Low confidence in security technologies has also restricted growth of E-Commerce activity. Business-to-consumer E-Commerce in particular has suffered from poor consumer confidence in secure monetary and personal data transactions. Business confidence in secure transactions is higher and continues to increase as electronic payment and encryption technologies are widely employed. It is important to note that this issue is strictly about confidence. Secure technology exists today. This indicates that business is either more informed or willing to take risks than consumers are. In either case, business-to-business E-Commerce is vibrant and demonstrates a confidence in the supportive technologies that should continue to transfer to consumers.

A third barrier to growth is the concern of legal issues, mostly the uncertainty of litigious boundaries. Since the Internet crosses political boundaries, legal jurisdiction is in question. Although the Internet improves access to foreign markets, national export/import laws still apply to all E-Commerce transactions.

Implementation

An E-Commerce operation is an integration of Internet technologies, systems, applications and practices. It may use any technology, such as e-mail clients, mailing lists, newsgroups, videoconferencing, IRC chat, web servers, web channels, telephony, CD-ROM media, and Internet fax, etc. It may use any information system, such as web sites, intranets, extranets, groupware, and document management systems. It may incorporate any Internet application or practice, such as communication, research, publishing, and marketing. There is no standard configuration to build an E-Commerce operation. Each one is unique and designed specifically for each business.

The configuration of an E-Commerce operation is determined by two dynamic factors:

1. The company's business goals
2. The capabilities of the supportive technology

Whereas business goals are relatively stable, E-Commerce technology is continually evolving. For this reason business goals should drive the design of the E-Commerce operation. Like traditional commerce, successful E-Commerce operations are fluid and adaptable to technological change. E-Commerce operations will modify and define new applications as the technology advances, but successful E-Commerce operations harness only the functionality of technology that support specific business needs or help achieve predetermined goals. It is ill-advised to design business services and goals strictly around the capabilities of the technology because it may:

• Confound the purpose of the business
• Distract the business from its primary goals
• Lead the business from a position of strength, effectively executing the business it knows, to one of weakness, pioneering new services which may require an extended learning curve to understand and operate efficiently.

For this reason, an important guideline for designing an E-Commerce operation is:

The technology should support the services. Select tools and technologies that serve business goals. Do not define services according to the features and functionality of the technologies.

Choosing the tools, planning the environment

Since there is no standard model or configuration of technologies upon which to build an E-Commerce operation, the underlying configuration of technologies will differ for each business. Perhaps the most important consideration for selecting tools is that for most operations there are many technologies to choose from that provide overlapping functionality. The challenge is to select the correct technologies that address the purpose of the operation, needs of the audience, and cost to implement. The best way to design an E-Commerce model is to define goals and target audiences then select tools to support each function.

For example,

The goal is to provide clients continuous updated information regarding product upgrades, known defects, recalls and warranty data. The current practice is to notify clients by postal mail.

The target audience is mostly small business operations. Most have dialup access with average speed modems and use the Internet sparingly for e-mail. Some have fax machines.

The solution is to choose technologies that push information to the target audience and support their limited technological capabilities.

A web site is an excellent way to publish information but it requires the user to initiate contact or pull the information from the site. Sophisticated channel technology can be used on the web site to push information to clients and still maintain the improved graphical user interface and multimedia composition of web pages. This corrects the push problem but it does not address the target audience's technological capabilities. To run effectively, channels typically require high-bandwidth connections. They also will not run on older web browsers. The target audience does not have fast connections or channel-capable browsers. Consequently, the best technologies that support the business goals yet address the target audience's needs are e-mail and/or Internet fax.

The technological configuration is a combination of e-mail, Internet fax service and WWW technologies. Through e-mail there are two ways to notify the audience: via a standard e-mail application that sends to a mailing group of e-mail addresses; or a mailing list package that publishes the message to the list of subscribers. For the standard e-mail application e-mail, addresses are collected at the point of sale electronically, by telephone, postal mail, or retroactively on the web site using online form registration. For the mailing list, users must subscribe to the group in order to receive e-mail. As an additional delivery means, those who request can receive notification through an Internet fax service. The web site is used to integrate the other technologies. It is used to collect e-mail addresses for the group mailing, register subscribers for the mailing list, request fax service and provide more detailed, graphical presentations of the notifications in HTML format.

This example illustrates how a typical E-Commerce operation integrates several technologies to perform specific, complementary functions. At the center is the web site, functioning as the forum to meet clients, collect client data, and serve product information. On the periphery are technologies such as e-mail and fax to deliver focused services. Between the parts there is overlap of services. This demonstrates that successful E-Commerce operations provide multiple mechanisms to deliver services and reach target markets. This example also suggests how the technological configuration may change as the target audience's technological capabilities expand. It shows how for this audience push technology is not yet appropriate. In the future, as the technology matures and bandwidth improves, the E-Commerce operation may integrate a push channel version into its notification system.