Web Enabled Business Process - 4

Introduction to E-Commerce 91
Notes
Unit 4: Introduction to E-Commerce
Structure:
4.1 E-Commerce
4.2 E-Business Model
4.3 Modern E-Commerce and Traditional Commerce
4.4 Categories and Models of E-Commerce
4.5 M-Commerce
4.6 Applications of E-Commerce
4.7 Barriers to E-Commerce in India
4.8 Threats to E-Commerce
4.9 Future of E-Commerce
4.10 Summary
4.11 Check Your Progress
4.12 Questions and Exercises
4.13 Key Terms
4.14 Check Your Progress: Answers
4.15 Case Study
4.16 Further Readings
Objectives
After going through this unit, you should be able to know:
● Introduction to e-commerce and e-commerce applications
● Issues in developing e-commerce applications
● Architecture of e-commerce applications
● Perspectives for e-commerce
● A Case Study based on this Unit
4.1 E-Commerce
E-Commerce or Electronics Commerce is a methodology of modern business which
addresses the need of business organizations, vendors and customers to reduce cost
and improve the quality of goods and services while increasing the speed of delivery.
E-commerce refers to paperless exchange of business information using following ways.
E-commerce (short for “electronic commerce”) is trading in products or services
using computer networks, such as the Internet. Electronic commerce draws on
technologies such as mobile commerce, 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 for at least
Amity Directorate of Distance and Online Education

92 Web-Enabled Business Processes
one part of the transaction’s life cycle, although it may also use other technologies such
Notes
as e-mail.
Electronic Data Exchange (EDI)
Electronic Mail (e-mail)
Electronic Bulletin Boards
Electronic Fund Transfer (EFT)
Other Network-based Technologies
Features
E-Commerce provides following features:
Non-cash payment: E-Commerce enables use of credit cards, debit cards,
smart cards, electronic fund transfer via bank’s website and other modes of
electronics payment.
24×7 service availability: E-Commerce automates business of enterprises
and services provided by them to customers are available anytime, anywhere.
Here, 24×7 refers to 24 hours of each seven days of a week.
Advertising/marketing: E-Commerce increases the reach of advertising of
products and services of businesses. It helps in better marketing management
of products/services.
Improved sales: Using E-Commerce, orders for the products can be
generated anytime, anywhere without any human intervention. By this way,
dependencies to buy a product reduce at large and sales increases.
Support: E-Commerce provides various ways to provide pre-sales and
post-sales assistance to provide better services to customers.
Inventory management: Using E-Commerce, inventory management of
products becomes automated. Reports get generated instantly when required.
Product inventory management becomes very efficient and easy to maintain.
Communication improvement: E-Commerce provides ways for faster,
efficient, and reliable communication with customers and partners.

Notes
Electronic Business or E-Business

Electronic business, or e-business, is the application of information and
communication technologies (ICT) in support of all the activities of business. Commerce
constitutes the exchange of products and services between businesses, groups and
individuals and can be seen as one of the essential activities of any business. Electronic
commerce focuses on the use of ICT to enable the external activities and relationships of
the business with individuals, groups and other businesses or e-business refers to
business with the help of internet, i.e., doing business with the help of internet network.
The term “e-business” was coined by IBM’s marketing and Internet team in 1996.
In 1997, IBM, with its agency Ogilvy & Mather, began to use its foundation in IT
solutions and expertise to market itself as a leader of conducting business on the Internet
through the term “e-business.” Then CEO Louis V. Gerstner, Jr. was prepared to invest
$1 billion to market this new brand. After conducting worldwide market research in
October 1997, IBM began with an eight-page piece in the Wall Street Journal that would
introduce the concept of “e-business” and advertise IBM’s expertise in the new field. IBM
decided not to trademark the term “e-business” in the hopes that other companies would
use the term and create an entire new industry. However, this proved to be too
successful and by 2000, to differentiate itself, IBM launched a $300 million campaign
about its “e-business infrastructure” capabilities. Since that time, the terms, “e-business”
and “e-commerce” have been loosely interchangeable and have become a part of the
common vernacular.
4.2 E-Business Model

When organizations go online, they have to decide which e-business models best
suit their goals. A business model is defined as the organization of product, service and
information flows, and the source of revenues and benefits for suppliers and customers.
The concept of e-business model is the same but used in the online presence.
Revenue Model
A key component of the business model is the revenue model, which is a framework
for generating revenues. It identifies which revenue source to pursue, what value to offer,
how to price the value, and who pays for the value. It is a key component of a company’s
business model. It primarily identifies what product or service will be created in order to
generate revenues and the ways in which the product or service will be sold.
Without a well-defined revenue model, that is, a clear plan of how to generate
revenues, new businesses will more likely struggle due to costs which they will not be

able to sustain. By having a clear revenue model, a business can focus on a target
Notes
audience, fund development plans for a product or service, establish marketing plans,
begin a line of credit and raise capital.
Concerns
While much has been written of the economic advantages of Internet-enabled
commerce, there is also evidence that some aspects of the internet such as maps and
location-aware services may serve to reinforce economic inequality and the digital divide.
Electronic commerce may be responsible for consolidation and the decline of
mom-and-pop, brick-and-mortar businesses resulting in increases in income inequality.
Author Andrew Keen, a long-time critic of the social transformations caused by the
Internet, has recently focused on the economic effects of consolidation from Internet
businesses. Keen cites a 2013 Institute for Local Self-reliance report saying
brick-and-mortar retailers employ 47 people for every $10 million in sales, while Amazon
employs only 14. Similarly, the 700-employee room rental start-up Airbnb was valued at
$10 billion in 2014, about half as much as Hilton Hotels, which employs 152,000 people.
And car-sharing Internet startup Uber employs 1,000 full-time employees and is valued at
$18.2 billion, about the same valuation as Avis and Hertz combined, which together
employ almost 60,000 people.
Security
E-Business systems naturally have greater security risks than traditional business
systems. Therefore, it is important for e-business systems to be fully protected against
these risks. A far greater number of people have access to e-businesses through the
internet than would have access to a traditional business. Customers, suppliers,
employees, and numerous other people use any particular e-business system daily and
expect their confidential information to stay secure. Hackers are one of the great threats
to the security of e-businesses. Some common security concerns for e-Businesses
include keeping business and customer information private and confidential, authenticity
of data, and data integrity. Some of the methods of protecting e-business security and
keeping information secure include physical security measures as well as data storage,
data transmission, anti-virus software, firewalls, and encryption to list a few.
Privacy and Confidentiality

Confidentiality is the extent to which businesses makes personal information
available to other businesses and individuals. With any business, confidential information
must remain secure and only be accessible to the intended recipient. However, this
becomes even more difficult when dealing with e-businesses specifically. To keep such
information secure means protecting any electronic records and files from unauthorized
access, as well as ensuring safe transmission and data storage of such information.
Tools such as encryption and firewalls manage this specific concern within e-business.
Authenticity
E-business transactions pose greater challenges for establishing authenticity due to
the ease with which electronic information may be altered and copied. Both parties in an
e-business transaction want to have the assurance that the other party is who they claim
to be, especially when a customer places an order and then submits a payment
electronically. One common way to ensure this is to limit access to a network or trusted
parties by using a virtual private network (VPN) technology. The establishment of
authenticity is even greater when a combination of techniques are used, and such
techniques involve checking “something you know” (i.e., password or PIN), “something

you need” (i.e., credit card), or “something you are” (i.e., digital signatures or voice
Notes
recognition methods). Many times in e-business, however, “something you are” is pretty
strongly verified by checking the purchaser’s “something you have” (i.e., credit card) and
“something you know” (i.e., card number).
Data Integrity
Data integrity answers the question “Can the information be changed or corrupted in
any way?” This leads to the assurance that the message received is identical to the
message sent. A business needs to be confident that data is not changed in transit,
whether deliberately or by accident. To help with data integrity, firewalls protect stored
data against unauthorized access, while simply backing up data allows recovery should
the data or equipment be damaged.
Non-repudiation
This concern deals with the existence of proof in a transaction. A business must
have assurance that the receiving party or purchaser cannot deny that a transaction has
occurred, and this means having sufficient evidence to prove the transaction. One way to
address non-repudiation is using digital signatures. A digital signature not only ensures
that a message or document has been electronically signed by the person, but since a
digital signature can only be created by one person, it also ensures that this person
cannot later deny that they provided their signature.
Access Control
When certain electronic resources and information is limited to only a few authorized
individuals, a business and its customers must have the assurance that no one else can
access the systems or information. Fortunately, there are a variety of techniques to
address this concern including firewalls, access privileges, user identification and
authentication techniques (such as passwords and digital certificates), Virtual Private
Networks (VPN), and much more.
Availability
This concern is specifically pertinent to a business’ customers as certain information
must be available when customers need it. Messages must be delivered in a reliable and
timely fashion, and information must be stored and retrieved as required. Because
availability of service is important for all e-business websites, steps must be taken to
prevent disruption of service by events such as power outages and damage to physical
infrastructure. Examples to address this include data backup, fire suppression systems,
Uninterrupted Power Supply (UPS) systems, virus protection, as well as making sure that
there is sufficient capacity to handle the demands posed by heavy network traffic.
Security Solutions
When it comes to security solutions, sustainable electronic business requires
support for data integrity, strong authentication, and privacy.
Access and Data Integrity

There are several different ways to prevent access to the data that is kept online.
One way is to use anti-virus software. This is something that most people use to protect
their networks regardless of the data they have. E-Businesses should use this because
they can then be sure that the information sent and received to their system is clean. A
second way to protect the data is to use firewalls and network protection. A firewall is

used to restrict access to private networks, as well as public networks that a company
Notes
may use. The firewall also has the ability to log attempts into the network and provide
warnings as it is happening. They are very beneficial to keep third parties out of the
network. Businesses that use Wi-Fi need to consider different forms of protection
because these networks are easier for someone to access. They should look into
protected access, virtual private networks, or internet protocol security. Another option
they have is an intrusion detection system. This system alerts when there are possible
intrusions. Some companies set up traps or “hotspots” to attract people and are then able
to know when someone is trying to hack into that area.
Encryption
Encryption, which is actually a part of cryptography, involves transforming texts or
messages into a code which is unreadable. These messages have to be decrypted in
order to be understandable or usable for someone. There is a key that identifies the data
to a certain person or company. With public key encryption, there are actually two keys
used. One is public and other is private. The public one is used for encryption, and the
private for decryption. The level of the actual encryption can be adjusted and should be
based on the information. The key can be just a simple slide of letters or a completely
random mix-up of letters. This is relatively easy to implement because there is software
that a company can purchase. A company needs to be sure that their keys are registered
with a certificate authority.
Digital Certificates
The point of a digital certificate is to identify the owner of a document. This way the
receiver knows that it is an authentic document. Companies can use these certificates in
several different ways. They can be used as a replacement for user names and
passwords. Each employee can be given these to access the documents that they need
from wherever they are. These certificates also use encryption. They are a little more
complicated than normal encryption however. They actually used important information
within the code. They do this in order to assure authenticity of the documents as well as
confidentiality and data integrity which always accompany encryption. Digital certificates
are not commonly used because they are confusing for people to implement. There can
be complications when using different browsers, which mean they need to use multiple
certificates. The process is being adjusted so that it is easier to use.
Digital Signatures
A final way to secure information online would be to use a digital signature. If a
document has a digital signature on it, no one else is able to edit the information without
being detected. That way if it is edited, it may be adjusted for reliability after the fact. In
order to use a digital signature, one must use a combination of cryptography and a
message digest. A message digest is used to give the document a unique value. That
value is then encrypted with the sender’s private key.
4.3 Modern E-Commerce and Traditional Commerce

Due to the increased popularity and availability of Internet access, many traditional
small business are considering e-commerce as a valid and profitable sales channel.
However, e-commerce and traditional commerce are very different, and it’s important to
weigh carefully the differences between e-commerce and traditional commerce in order
to decide if it would be a good fit for your business or just a costly mistake.

Direct Interaction Notes

Traditional commerce is often based around face to face interaction. The customer
has a chance to ask questions and the sales staff can work with them to ensure a
satisfactory transaction. Often this gives sales staff an opportunity for upselling, or
encourages the client to buy a more expensive item or related items, increasing the shop
profits. On the other hand, e-commerce doesn’t offer this benefit unless features such as
related items or live chats are implemented.
Lower Costs
E-Commerce is usually much cheaper than maintaining a physical store in an
equally popular location. Compared with costs such as commercial space rent, opening
an online store can be done at a fraction of the price for less than $50 per month. This
can prove invaluable for small business owners who don’t have the start-up capital to
rent prime retail space and staff it to be able to sell their goods.
Reach
With an online shop, you can do business with anybody living in a country you are
able and willing to send mail to, unlike traditional commerce where you are restricted to
people who actually come to your shop. This also opens the door to many other forms of
marketing that can be done entirely online, which often results in a much larger volume of
sales and even foot traffic to the store. An online store has no capability limits, and you
can have as many clients as your stock can serve.
Returns Rate
In a traditional store, the customer will be purchasing the product in person, which
has some benefits for both the him and the store. The customer will be able to touch and
check the items, to make sure they are suitable, and even try them on, which reduces the
number of returned items or complaints due to an item not being as advertised on a
catalogue. Or promotional leaflet. Expect a significantly higher rate of returns if you start
trading online, as many will just order and try the items at home, and won’t hesitate to
return them as they can do it by post without having to talk with anybody in person.
Credit Card Fraud

The remote nature of E-Commerce makes much more difficult to detect fraud, which
means stores can lose money due to fraud. While traditional commerce is not totally
secure, it’s easier for a sales attendant to verify that the person buying something is
actually the owner of the credit card, by asking for photographic ID. However, the fight
against card fraud is well underway and banks and responsible e-commerce owner’s
work together to verify that all card use is legitimate.
Selling online means learning new ways of dealing with customers, marketing your
products and fulfilling your orders, but the benefits are great. You can keep your costs
lower, reach a wider audience and do business 24/7, having time to focus on improving
your products and services and your customer experience instead of being on the store
floor waiting for clients. Some products sell better online than others: selling jewellery for
cash online is much easier than trying to sell houses or cars. However, having an online
store can increase the customers on your traditional commerce as well, as people are
now able to find you online and see what products you are offering.

Traditional Commerce vs. Online E-Commerce
Notes
Sr. Traditional Commerce Online E-Commerce
No.
1 Heavy dependency on information Information sharing is made easy via
exchange from person to person. electronic communication channels making
little dependency on person to person
information exchange.
2 Communication/transaction are done in Communication or transaction can be done in
synchronous way. Manual intervention asynchronous way. Electronics system
is required for each communication or automatically handles when to pass
transaction. communication to required person or do the
transactions.
3 It is difficult to establish and maintain A uniform strategy can be easily established
standard practices in traditional and maintain in e-commerce.
commerce.
4 Communications of business depends In e-commerce or Electronic Market, there is
upon individual skills. no human intervention.
5 Unavailability of a uniform platform as E-Commerce website provides user a platform
traditional commerce depends heavily where all information is available at one place.
on personal communication.
6 No uniform platform for information E-Commerce provides a universal platform to
sharing as it depends heavily on support commercial/business activities across
personal communication. the globe.
E-Commerce Advantages
E-Commerce advantages can be broadly classified in three major categories:
Advantages to Organizations
Advantages to Consumers
Advantages to Society
Advantages to Organizations
Using E-Commerce, organization can expand their market to national and
international markets with minimum capital investment. An organization can
easily locate more customers, best suppliers and suitable business partners
across the globe.
E-Commerce helps organization to reduce the cost to create process,
distribute, retrieve and manage the paper-based information by digitizing the
information.
E-Commerce improves the brand image of the company.
E-Commerce helps organization to provide better customer services.
E-Commerce helps to simplify the business processes and make them faster
and efficient.
E-Commerce reduces paperwork a lot.
E-Commerce increased the productivity of the organization. It supports “pull”
type supply management. In “pull” type supply management, a business
process starts when a request comes from a customer and it uses just-in-time
manufacturing way.

Advantages to Customers
Notes
24x7 supports. Customer can do transactions for the product or enquiry about
any product/services provided by a company any time, anywhere from any
location. Here 24×7 refers to 24 hours of each seven days of a week.
E-Commerce application provides user more options and quicker delivery of
products.
E-Commerce application provides user more options to compare and select
the cheaper and better option.
A customer can put review comments about a product and can see what others
are buying or see the review comments of other customers before making a
final buy.
E-Commerce provides option of virtual auctions.
Readily available information. A customer can see the relevant detailed
information within seconds rather than waiting for days or weeks.
E-Commerce increases competition among the organizations and as a result,
organizations provides substantial discounts to customers.
Advantages to Society
Customers need not to travel to shop a product, thus less traffic on road and
low air pollution.
E-Commerce helps reducing cost of products, so less affluent people can also
afford the products.
E-Commerce has enabled access to services and products to rural areas as
well which are otherwise not available to them.
E-Commerce helps government to deliver public services like health care,
education, social services at reduced cost and in improved way.
E-Commerce Disadvantages
E-Commerce disadvantages can be broadly classified in two major categories:
Technical disadvantages
Non-technical disadvantages
Technical Disadvantages
There can be lack of system security, reliability or standards owing to poor
implementation of E-Commerce.
Software development industry is still evolving and keeps changing rapidly.
In many countries, network bandwidth might cause an issue as there is
insufficient telecommunication bandwidth available.
Special types of web server or other software might be required by the vendor
setting the e-commerce environment apart from network servers.
Sometimes, it becomes difficult to integrate E-Commerce software or website
with the existing application or databases.
There could be software/hardware compatibility issue as some E-Commerce
software may be incompatible with some operating system or any other
component.

Non-technical Disadvantages
Notes
Initial cost: The cost of creating/building E-Commerce application in-house
may be very high. There could be delay in launching the E-Commerce
application due to mistakes, lack of experience, etc.
User resistance: User may not trust the site being unknown faceless seller.
Such mistrust makes it difficult to make user switch from physical stores to
online/virtual stores.
Security/privacy: Difficult to ensure security or privacy on online transactions.
Lack of touch or feel of products during online shopping.
E-Commerce applications are still evolving and changing rapidly.
Internet access is still not cheaper and is inconvenient to use for many
potential customers like one living in remote villages.
4.4 Categories and Models of E-Commerce

E-Commerce or Electronics Commerce business models can generally categorized
in following categories.
Business-to-Business (B2B)
Business-to-Consumer (B2C)
Consumer-to-Consumer (C2C)
Consumer-to-Business (C2B)
Business-to-Government (B2G)
Government-to-Business (G2B)
Government-to-Citizen (G2C)
Business-to-Business (B2B)
Website following B2B business model sells its product to an intermediate buyer
who then sells the product to the final customer. As an example, a wholesaler places an
order from a company’s website and after receiving the consignment, sells the end
product to final customer who comes to buy the product at wholesaler’s retail outlet.

Business-to-Consumer (B2C) Notes

Website following B2C business model sells its product directly to a customer. A
customer can view products shown on the website of business organization. The
customer can choose a product and order the same. Website will send a notification to
the business organization via e-mail and organization will dispatch the product/goods to
the customer.
Consumer-to-Consumer (C2C)
Website following C2C business model helps consumer to sell their assets like
residential property, cars, motorcycles, etc. or rent a room by publishing their information
on the website. Website may or may not charge the consumer for its services. Another
consumer may opt to buy the product of the first customer by viewing the post/
advertisement on the website.
Consumer-to-Business (C2B)
In this model, a consumer approaches website showing multiple business
organizations for a particular service. Consumer places an estimate of amount he/she
wants to spend for a particular service. For example, comparison of interest rates of
personal loan/car loan provided by various banks via website. Business organization that
fulfills the consumer’s requirement within specified budget approaches the customer and
provides its services.

Notes
Business-to-Government (B2G)
B2G model is a variant of B2B model. Such websites are used by government to
trade and exchange information with various business organizations. Such websites are
accredited by the government and provide a medium to businesses to submit application
forms to the government.
Government-to-Business (G2B)
Government uses B2G model website to approach business organizations. Such
websites support auctions, tenders and application submission functionalities.
Government-to-Citizen (G2C)
Government uses G2C model website to approach citizen in general. Such websites
support auctions of vehicles, machinery or any other material. Such website also
provides services like registration for birth, marriage or death certificates. Main objectives
of G2C website are to reduce average time for fulfilling people requests for various
government services.
4.5 M-Commerce
M-Commerce and E-Commerce refer to the field of marketing – buying, selling,
distributing and servicing different products through commercial transactions on the
internet with the use of specific devices or computers.

M-Commerce stands for Mobile Commerce wherein commercial transactions are

Notes
done using cellular or mobile phones that have access to the Internet. Before there
was no M-Commerce because phones with Internet capability were not yet available;
however, when mobile phones with Internet capability were invented, marketing has
expanded more. Not only are business transactions done outside and through the
Internet, but also through mobile phones has skyrocketed. Today, many phones have
access to the Internet. With the rise of such technology, M-Commerce is becoming
more popular.
M-Commerce is very portable because mobile phones are very easy to carry. You
can do your business transactions anywhere you go as long as you can access the
Internet on your phone. Unlike E-commerce, you have to do your transactions on the
computer. Laptops are also portable but not as light as mobile phones. Then you still
have to look for a place to do your transactions because it would be uncomfortable using
your laptop anywhere or while you are standing.
M-Commerce is usually charged through the caller’s premium rates, charging the
user’s bill, or reducing the caller’s credit, and also through mobile banking. E-Commerce
is charged through the use of swipe machines where you swipe your credit card. You can
also transfer money through online banking and pay for products you have bought on the
Internet using your credit card number.
M-Commerce is available anywhere you go even if there is no Internet because the
Internet is available in your mobile phone, while for E-Commerce it is not available
everywhere because not all places have an Internet connection.
In conclusion, M-Commerce means doing business transactions on the Internet
through the use of mobile devices, while E-Commerce means doing business
transactions on the Internet using computers or laptops.
Summary:
1. M-Commerce and E-Commerce are business transactions done online.

2. M-Commerce stands for Mobile Commerce while E-Commerce stands for
Electronic Commerce.
3. M-Commerce uses mobile devices for commercial transactions while
E-Commerce uses computers.
4. M-Commerce is available any place you go, even if there is no Internet. For
E-Commerce, you still need to go to a place where there is Internet to access
your online transactions.
5. M-Commerce is very handy and easy to carry while E-Commerce you cannot
always bring with you your computer or laptop anywhere.
6. M-Commerce is charged through the caller’s rate, deduction of user’s credit,
and mobile banking. E-Commerce is charge through the use of credit cards
that are swiped in credit card machines.
7. In conclusion, M-Commerce uses mobile devices for business transactions
while E-Commerce uses computers or laptops for business transactions.
4.6 Applications of E-Commerce

The applications of E-Commerce are used in various business areas such as retail
and wholesale and manufacturing. The most common E-Commerce applications are as
follows:

Retail and Wholesale: E-Commerce has a number of applications in retail and
Notes
wholesale. E-retailing or online retailing is the selling of goods from
Business-to-Consumer through electronic stores that are designed using the electronic
catalog and shopping cart model. Cybermall is a single website that offers different
products and services at one Internet location. It attracts the customer and the seller into
one virtual space through a Web browser.
Marketing: Data collection about customer behaviour, preferences, needs and
buying patterns is possible through Web and E-commerce. This helps marketing
activities such as price fixation, negotiation, product feature enhancement and
relationship with the customer.
Finance: Financial companies are using E-Commerce to a large extent. Customers
can check the balances of their savings and loan accounts, transfer money to their other
account and pay their bill through online banking or E-Banking. Another application of
E-Commerce is online stock trading. Many websites provide access to news, charts,
information about company profile and analyst rating on the stocks.
Manufacturing: E-Commerce is also used in the supply chain operations of a
company. Some companies form an electronic exchange by providing together buy and
sell goods, trade market information and run back-office information such as inventory
control. This speeds up the flow of raw material and finished goods among the members
of the business community. Various issues related to the strategic and competitive issues
limit the implementation of the business models. Companies may not trust their
competitors and may fear that they will lose trade secrets if they participate in mass
electronic exchanges.
Auctions:
Customer-to-Customer E-Commerce is direct selling of goods and services among
customers. It also includes electronic auctions that involve bidding. Bidding is a special
type of auction that allows prospective buyers to bid for an item. For example, airline
companies give the customer an opportunity to quote the price for a seat on a specific
route on the specified date and time.
Payment Systems
E-Commerce or Electronics Commerce sites use electronic payment where
electronic payment refers to paperless monetary transactions. Electronic payment has
revolutionized the business processing by reducing paperwork, transaction costs and
labour cost. Being user-friendly and less time-consuming than manual processing, helps
business organization to expand its market reach/expansion. Some of the modes of
electronic payments are following:
Credit Card
Debit Card
Smart Card
E-Money
Electronic Fund Transfer (EFT)
4.7 Barriers to E-Commerce in India

Some of the infrastructural barriers responsible for slow growth of e-commerce in
India. Also some of these even present new business opportunities.

Notes
A. Payment collection: When get paid by net banking, one has to end up giving
a significant share of revenue (3% or more) even with a business of thin margin.
This effectively means parting away with almost half of profits. Fraudulent
charges, charge backs, etc. all become merchant’s responsibility and hence to
be accounted for in the business model.
B. Logistics: You have to deliver the product, safe and secure, in the hands of
the right guy in right time frame. Regular post doesn’t offer an acceptable
service level; couriers have high charges and limited reach. Initially, you might
have to take insurance for high value shipped articles increasing the cost.
C. Vendor management: However advanced system may be, vendor will have to
come down and deal in an inefficient system for inventory management. This
will slow down drastically. Most of them won’t carry any digital data for their
products. No nice looking photographs, no digital data sheet, no mechanism to
check for daily prices, availability to keep your site updated.
D. Taxation: Octroi, entry tax, VAT and lots of state specific forms which
accompany them can be confusing at times with lots of exceptions and special
rules.
E. Limited Internet access among customers and SMEs.
F. Poor telecom and infrastructure for reliable connectivity.
G. Multiple gaps in the current legal and regulatory framework.
4.8 Threats to E-Commerce

Security is an essential part of any transaction that takes place over the internet.
Customer will lose his/her faith in e-business if its security is compromised. Following are
the essential requirements for safe e-payments/transactions:
Confidential: Information should not be accessible to unauthorized person. It
should not be intercepted during transmission.
Integrity: Information should not be altered during its transmission over the
network.

Availability: Information should be available wherever and whenever
Notes
requirement within time limit specified.
Authenticity: There should be a mechanism to authenticate user before giving
him/her access to required information.
Non-repudiabiity: It is protection against denial of order or denial of payment.
Once a sender sends a message, the sender should not able to deny sending
the message. Similarly, the recipient of message should not be able to deny
receipt.
Encryption: Information should be encrypted and decrypted only by
authorized user.
Auditability: Data should be recorded in such a way that it can be audited for
integrity requirements.
Measures to Ensure Security

Major security measures are following:
Encryption: It is a very effective and practical way to safeguard the data being
transmitted over the network. Sender of the information encrypts the data using
a secret code and specified receiver only can decrypt the data using the same
or different secret code.
Digital Signature: Digital signature ensures the authenticity of the information.
A digital signature is an e-signature authentic authenticated through encryption
and password.
Security Certificates: Security certificate is unique digital ID used to verify
identity of an individual website or user.
Security Protocols in Internet

Following are the popular protocols used over the internet which ensures security of
transactions made over the internet.
Secure Socket Layer (SSL)

It is the most commonly used protocol and is widely used across the industry. It
meets following security requirements:
Authentication
Encryption
Integrity
Non-reputability
“https://” is to be used for HTTP urls with SSL, whereas “http:/” is to be used for
HTTP urls without SSL.
Secure Hypertext Transfer Protocol (SHTTP)

SHTTP extends the HTTP internet protocol with public key encryption,
authentication and digital signature over the internet. Secure HTTP supports multiple
security mechanism providing security to end-users. SHTTP works by negotiating
encryption scheme types used between client and server.
Secure Electronic Transaction

It is a secure protocol developed by MasterCard and Visa in collaboration.
Theoretically, it is the best security protocol. It has following components:

Card Holder’s Digital Wallet Software: Digital Wallet allows card holder to
Notes
make secure purchases online via point-and-click interface.
Merchant Software: This software helps merchants to communicate with
potential customers and financial institutions in secure manner.
Payment Gateway Server Software: Payment gateway provides automatic
and standard payment process. It supports the process for merchant’s
certificate request.
Certificate Authority Software: This software is used by financial institutions
to issue digital certificates to card holders and merchants and to enable them to
register their account agreements for secure electronic commerce.
B2B Model
Website following B2B business model sells its product to an intermediate buyer
who then sells the product to the final customer. As an example, a wholesaler places an
order from a company’s website and after receiving the consignment, sells the end
product to final customer who comes to buy the product at wholesaler’s retail outlet.
B2B implies that seller as well as buyer is business entity. B2B covers large number
of applications which enables business to form relationships with their distributors,
resellers, suppliers, etc. Following are the leading items in B2B E-Commerce.
Electronics
Shipping and Warehousing
Motor Vehicles
Petrochemicals
Paper
Office Products
Food
Agriculture
Key Technologies
Following are the key technologies used in B2B E-Commerce:

Electronic Data Interchange (EDI): EDI is an inter-organizational exchange of
Notes
business documents in a structured and machine processable format.
Internet: Internet represents World Wide Web or network of networks
connecting computers across the world.
Intranet: Intranet represents a dedicated network of computers within a single
organization.
Extranet: Extranet represents a network where outside business partners,
supplier or customers can have limited access to a portion of enterprise
intranet/network.
Back-end Information System Integration: Back-end information systems
are database management systems used to manage the business data.
Architectural Models
Following are the architectural models in B2B e-commerce:
Supplier oriented marketplace: In this type of model, a common marketplace
provided by supplier is used by both individual customers as well as business
users. A supplier offers e-stores for sales promotion.
Buyer oriented marketplace: In this type of model, buyer has his/her own
marketplace or e-market. He invites suppliers to bid on product’s catalog. A
buyer company opens a bidding site.
Intermediary oriented marketplace: In this type of model, an intermediary
company runs a marketplace where business buyers and sellers can transact
with each other.
B2C Model
In B2C model, business website is a place where all transactions take place
between a business organization and consumer directly.
In B2C Model, a consumer goes to the website, selects a catalog, orders the catalog
and an e-mail is sent to business organization. After receiving the order, goods would be
dispatched to the customer. Following are the key features of a B2C Model:
Heavy advertising required to attract large number of customers.
High investment in terms of hardware/software.
Support or good customer care service
Consumer Shopping Procedure

Following are the steps used in B2C e-commerce:

A consumer:
Notes
determines the requirement.
searches available items on the website meeting the requirement.
compares similar items for price, delivery date or any other terms.
gives the order.
pays the bill.
receives the delivered item and review/inspect them.
consults the vendor to get after service support or returns the product if not
satisfied with the delivered product.
Disintermediation and Reintermediation

In traditional commerce, there are intermediating agents like wholesalers,
distributors, retailers between manufacturer and consumer. In B2C website,
manufacturer can sell products directly to consumers. This process of removal of
business layers responsible for intermediary functions is called Disintermediation.
Nowadays, a new electronic intermediary breed is emerging like e-mall and product
selection agents are emerging. This process of shifting of business layers responsible for
intermediary functions from traditional to electronic mediums is called Reintermediation.

Notes
Like any digital technology or consumer-based purchasing market, e-commerce has

evolved over the years. As mobile devices became more popular, mobile commerce has
become its own market. With the rise of sites like Facebook and Pinterest, social media
has become an important driver of e-commerce. As of 2014, Facebook drove 85% of
social media-originating sales on e-commerce platform Shopify, according to Paymill.
E-Commerce Strategy
As in any new venture, the first step in succeeding in e-commerce is to set goals. Do
you plan to increase revenue from existing customers? Gain new customers? Increase
the average order value? Sell through new channels? Lower prices? Once you have
figured out your goals, it’s time to set a plan.
A SWOT analysis can help you assess the strengths, weaknesses, opportunities
and threats of your company’s current environment. What does the market look like?
Where does your business excel, and where does it falter? Review your entire business,
not just segments of it. Evaluate external opportunities, because this is often the primary
place to invest time and money. Be honest with yourself when analyzing weaknesses
and threats, or else the analysis will not be helpful.
After the SWOT analysis is done, see how it fits into your overall vision. Where do
you see your business in five years? In ten years? This will help you set business
objectives for the current year, where you set objectives for sales, profits, customers,
traffic, new systems and new staff. After the objectives are set, you can set a strategy
into place yourself, or hire an e-commerce consultant to help you.
Other tools that can help you determine how to best grow your company into a new
segment include PEST (Political, Economic, Social and Technological), MOST (Mission,
Objective, Strategies and Tactics), and Porter’s Five Forces analyses.
E-Commerce Law
In addition to having a strong business strategy, it’s important to have a basic
understanding of e-commerce law. Online sellers, particularly those selling internationally
or across state lines, face different legal and financial considerations, especially in regard
to privacy, security, copyright and taxation.
The Federal Trade Commission (FTC) regulates most e-commerce activities,
including the use of commercial e-mails, online advertising and consumer privacy.
Businesses collect and retain sensitive personal information about their customers, and
your company is subject to federal and state privacy laws, depending on the type of data
that you collect.

There are also online advertising laws that protect consumer privacy and ensure
Notes
truthful marketing practices online. As an e-commerce business, online advertising is a
major part of your strategy. Over the past decade, federal and state governments have
passed new online advertising laws. As you expand into online marketing, it is important
to be familiar with these.
In addition to protecting consumers from data leaks and misleading online
advertising, digital works are also protected on the Internet via the Digital Millennium
Copyright Act (DMCA). There are a number of provisions that e-commerce businesses
need to be aware of, including copyright infringement liability and a service provider’s
responsibilities.
4.9 Future of E-Commerce

E-Commerce businesses may employ some or all of the following:
Online shopping websites for retail sales direct to consumers
Providing or participating in online marketplaces, which process third party
business-to-consumer or consumer-to-consumer sales
Business-to-business buying and selling
Gathering and using demographic data through web contacts and social media
Business-to-business electronic data interchange
Marketing to prospective and established customers by e-mail or fax (for
example, with newsletters)
Engaging in Pretail for launching new products and services
A timeline for the development of E-Commerce:
1971 or 1972: The ARPANET is used to arrange a cannabis sale between
students at the Stanford Artificial Intelligence Laboratory and the
Massachusetts Institute of Technology, later described as “the seminal act of
e-commerce” in Markoff’s book What the Dormouse Said.
1979: Michael Aldrich demonstrates the first online shopping system.
1981: Thomson Holidays UK is first business-to-business online shopping
system to be installed.
1982: Minitel was introduced nationwide in France by France Telecom and
used for online ordering.
1983: California State Assembly holds first hearing on “electronic commerce”
in Volcano, California. Testifying are CPUC, MCI Mail, Prodigy, CompuServe,
Volcano Telephone, and Pacific Telesis. (Not permitted to testify is Quantum
Technology, later to become AOL.)
1984: Gates head SIS/Tesco is first B2C online shopping system and Mrs.
Snowball, 72, is the first online home shopper.
1984: In April 1984, CompuServe launches the Electronic Mall in the USA and
Canada. It is the first comprehensive electronic commerce service.
1990: Tim Berners-Lee writes the first web browser, Worldwide Web, using a
NeXT computer.
1992: Book Stacks Unlimited in Cleveland opens a commercial sales website
(www.books.com) selling books online with credit card processing.
1992: St. Martin’s Press publishes J.H. Snider and Terra Ziporyn’s Future
Shop: How New Technologies Will Change the Way We Shop and What We
Buy.

1993: Paget Press releases edition No. 3 of the first app store, The Electronic
Notes
AppWrapper.
1994: Netscape releases the Navigator browser in October under the code
name Mozilla. Netscape 1.0 is introduced in late 1994 with SSL encryption that
made transactions secure.
1994: Ipswitch IMail Server becomes the first software available online for sale
and immediate download via a partnership between Ipswitch, Inc. and Open
Market.
1994: “Ten Summoner’s Tales” by Sting becomes the first secure online
purchase.
1995: The US National Science Foundation lifts its former strict prohibition of
commercial enterprise on the Internet.
1995: Thursday 27 April 1995, the purchase of a book by Paul Stanfield,
Product Manager for CompuServe UK, from W.H. Smith’s shop within
CompuServe’s UK Shopping Centre is the UK’s first national online shopping
service secure transaction. The shopping service at launch featured W.H. Smith,
Tesco, Virgin Megastores/Our Price, Great Universal Stores (GUS), Interflora,
Dixons Retail, Past Times, PC World (retailer) and Innovations.
1995: Jeff Bezos launches Amazon.com and the first commercial-free 24-hour,
internet-only radio stations, Radio HK and NetRadio start broadcasting. eBay is
founded by computer programmer Pierre Omidyar as AuctionWeb.
1996: India MART B2B marketplace established in India.
1996: ECPlaza B2B marketplace established in Korea.
1996: The UK e-commerce platform Seller deck, formerly Actinic, is
established.
1998: Electronic postal stamps can be purchased and downloaded for printing
from the Web.
1998: Cbazaar formerly chennaibazaar.com, India’s first B2C e-commerce
portal launched by Rajesh Nahar and Ritesh Katariya.
1999: Alibaba Group is established in China. Business.com sold for US $7.5
million to eCompanies, which was purchased in 1997 for US $149,000. The
peer-to-peer file sharing software Napster launches. ATG Stores launches to
sell decorative items for the home online.
2000: The dot-com bust.
2001: Alibaba.com achieved profitability in December 2001.
2002: eBay acquires PayPal for $1.5 billion. Niche retail companies Wayfair
and Net Shops are founded with the concept of selling products through
several targeted domains, rather than a central portal.
2003: Amazon.com posts first yearly profit.
2003: Boss goo B2B marketplace established in China.
2004: DHgate.com, China’s first online b2b transaction platform is established,
forcing other b2b sites to move away from the “yellow pages” model.
2007: Business.com acquired by R.H. Donnelley for $345 million.
2009: Zappos.com acquired by Amazon.com for $928 million. 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.

2010: Groupon reportedly rejects a $6 billion offer from Google. Instead, the
Notes
group buying websites went ahead with an IPO on 4 November 2011. It was
the largest IPO since Google.
2011: Quidsi.com, parent company of Diapers.com, acquired by Amazon.com
for $500 million in cash plus $45 million in debt and other obligations. GSI
Commerce, a company specializing in creating, developing and running online
shopping sites for brick-and-mortar businesses, acquired by eBay for $2.4
billion.
2014: Overstock.com processes over $1 million in Bit coin sales. India’s
e-commerce industry is estimated to have grown more than 30% from 2012 to
$12.6 billion in 2013. US e-commerce and Online Retail sales projected to
reach $294 billion, an increase of 12% over 2013 and 9% of all retail sales.
Alibaba Group has the largest Initial public offering ever, worth $25 billion.
Business Applications
An example of an automated online assistant on a merchandising website.
Some common applications related to electronic commerce are:
Document automation in supply chain and logistics
Domestic and international payment systems
Enterprise content management
Group buying
Print on demand
Automated online assistant
Newsgroups
Online shopping and order tracking
Online banking
Online office suites
Shopping cart software
Teleconferencing
Electronic tickets
Social networking
Instant messaging
Pretail
Digital Wallet
4.10 Summary
● E-Commerce can provide the following benefits over non-electronic commerce:
● Reduced costs by reducing labour, reduced paperwork, reduced errors in
keying in data and reducing post costs.
● Reduced time. Shorter lead times for payment and return on investment in
advertising and faster delivery of product.
● Flexibility with efficiency. The ability to handle complex situations, product
ranges and customer profiles without the situation becoming unmanageable.
● Improve relationships with trading partners. Improved communication between
trading partners leads to enhanced long-term relationships.

● Lock in Customers. The closer you are to your customer and the more you
Notes
work with them to change from normal business practices to best practice
e-commerce, the harder it is for a competitor to upset your customer
relationship.
● New Markets. The Internet has the potential to expand your business into wider
geographical locations.
4.11 Check Your Progress

I. Fill in the Blanks
1. __________ is the most significant part of of e-commerce.
2. In the e-mail address jgreen03@gsm.uci.edu, __________ is the top-level
domain.
3. A program that uses artificial intelligence to perform a specific task, usually in
the background is called __________. It is also known as an intelligent agent.
4. It is particularly difficult to maintain the competition advantage based on
__________.
II. True or False
1. The accelerating pace of innovation has made time to market a critical
measure of e-commerce success.
2. The process of advancing E-Commerce technologies will only lead to more
disintermediation.
3. B2B and B2C IT initiatives can use the same E-Commerce platforms.
4. B2B initiatives are often associated with enterprises breaking new ground –
providing new products or entering new markets.
5. For larger companies, e-mail is usually managed at the local levels.
III. Multiple Choice Questions
1. Software, music, digitized images, electronic games, pornography can be
revenue sources for the B2C e-commerce __________.
(a) selling services
(b) doing customization
(c) selling digital products
(d) selling physical products
2. What e-commerce category is the largest in terms of revenue?
(a) Business to Business (B2B)
(b) Intra-business (B2E)
(c) Business to Consumer (B2C)
(d) Consumer to Consumer (C2C)
3. Which of the following items is used to protect your computer from unwanted
intruders?
(a) A cookie
(b) A browser
(c) A firewall
(d) A server
4. For selling physical products on the Internet, what is the key to profitability?
(a) Hook
(b) Cost Control

(c) Brand Recognition

Notes
(d) Customization
5. Which of the following B2C companies is the best example of achieving its
financial success through controlling its cost?
(a) Yahoo
(b) Amazon
(c) E-Bay
(d) Google
(e) None of the above
6. AsianAvenue.com, BlackVoices.com, iVillage.com and SeniorNet.org are all
examples of what?
(a) Intermediary Services Websites
(b) Physical Communities
(c) B2C Websites
(d) Virtual Communities
7. Which of the following is the least attractive product to sell online?
(a) Downloadable Music
(b) Software
(c) A PDA
(d) Electronic Stock Trading
8. The primary focus of most B2C applications is generating __________.
(a) Revenue
(b) Product
(c) Service
(d) Website
4.12 Questions and Exercises

1. How E-Commerce works?
2. List the major benefits of E-Commerce.
3. What are the various applications of E-Commerce?
4. Explain the term “Web Hosting”.
5. Explain in brief B2B, B2C, C2B and C2C.
6. Explain electronic payment procedure.
7. What do you think cookies do?
4.13 Key Terms

● Authorization Request: An electronic message sent from the merchant’s
business to the customer’s credit card issuing bank to request an authorization
code for a sale transaction.
● Authorization Response: An issuing bank’s electronic message reply to an
authorization request.
● Bank: An institution that handles savings and checking accounts, issues loans
and credit, and deals in government and corporate issued securities.
● Bank Account: An account that holds funds within a bank and is subject to
additional deposits and withdrawals.

● Batch Settlement: Each time an order is placed, it is approved and added to a
Notes
“batch”. But the funds have not actually been charged against the credit cards
nor transferred to the merchant’s bank account. That happens when the
business manager accesses the Back-office Order interface to first “capture”
the funds for orders in a batch and then to “settle” the batch. Capturing the
funds causes the credit cards to get charged and the funds to be transferred to
the merchant bank account.
● Browser: A client to a web server that allows the user to read hypertext
documents on the World Wide Web. Netscape Navigator and Microsoft Internet
Explorer are examples of popular web browsers.
● Business Community: A central point where buyers and sellers can engage
in electronic commerce, or build and manage an online business.
http://www.ecplace.com is a free Business Community index that Multiactive
Software provides free of charge to all ecBuilder merchants.
● Capture: The act of converting the authorization amount into a billable
transaction record. Transactions cannot be captured unless previously
authorized, and authorizations should not be captured until the goods or
services have been shipped or transmitted to the consumer.
● Cardholder: Any person who opens a credit card account and makes
purchases using a credit card.
● Cash: Money in the form of paper or coin that is readily available for use as a
medium of exchange.
● Certificate: An electronic affidavit, issued by a trusted organization, like a bank,
that vouches for the identity and the authority of an individual or business to
conduct any transaction over the Internet.
● Certificate Authority: A Certificate Authority can be an issuer of Security
Certificates used in SSL connections, as well as a trusted third-party
organization that can verify the identity and origin of a person or organization.
These institutions issue digital certificates directly to end-users or to other
certificate authorities allowing them to also issue digital certificates. A
certificate authority, such as Thawte or VeriSign, vouches for the identity and
the authority of an individual or business to conduct transactions over the
Internet.
● Chargeback: The process of taking back, or debiting, the merchant’s credit
card funds after the funds have been paid to the merchant. This occurs when a
customer disputes a credit card transaction. The merchant must respond to the
charge back and provide proof that the product or service was provided to the
customer.
● Checking Account: A bank account that the account holder can draw checks
against without giving prior notice or having a passbook.
● Clearing: The process a check goes through to validate and transfer funds
between banks. An electronic check will clear in the same manner as a paper
check.
● Common Gateway Interface (CGI) Script: A computer program that allows
web servers to forward requests for processing to other programs, which then
return their results to the web server.
● Connection Establishing: Contact with a remote computer.
● Consumer: A person who purchases goods and services.
● Credit: The extension of funds issued by a bank that allows a consumer to
purchase goods or services from a merchant. The consumer then pays back

the bank either in full or in installments, at an interest rate determined by the

Notes
bank.
● Credit card: A bank-issued card that allows consumers to purchase goods or
services from a merchant on credit.
● Credit Card Charge Role: WSU Departmental employee who has been
authorized to accept and process credit card payments over the phone, via
mail order, in person or web-based virtual terminal. This individual may not
have the Credit Card Refund Role in conjunction with this role.
● Credit Card Gateway: A reference to both the actual machine and the
company hosting the credit card gateway server, acting as a middleman
between the merchant and the merchant bank. The Credit Card Gateway
passes data between the merchant’s business website and the banks.
● Credit Card Refund Role: WSU Departmental employee who has been
authorized to process approved credit card refunds. This individual may not
have the Credit Card Charge Role in conjunction with this role.
● Credit Deposit: The value of a merchant’s credit card purchases that are
credited to its bank account after the acquirer buys the merchant’s sales slips.
The deposit is credited. It is not funded until the acquirer gets the monetary
value from the issuer during settlement.
● DDA Demand Deposit Account: A bank account, such as a checking account,
that allows the holder to withdraw funds or use funds for payment upon
demand.
● Debit: The process of subtracting from the balance of an account.
● Debit Card: An ATM bankcard. This type of card allows a merchant to deduct
money directly from a customer’s bank account.
● Decrypt: The process of converting encrypted data or text back to plain data or
text.
● Denial: When permission to perform a particular action has been declined.
● DES: Data Encryption Standard
4.14 Check Your Progress: Answers

I. Fill in the Blanks
1. B2B
2. edu
3. A bot
4. Price
II. True or False
1. True
2. False
3. False
4. False
5. False
III. Multiple Choice Questions
1. (c) selling digital products
2. (a) Business to Business (B2B)
3. (c) A firewall
4. (b) Cost Control

5. (c) E-Bay
Notes
6. (d) Virtual Communities
7. (c) a PDA
8. (a) Revenue
4.15 Case Study
Case Study: Dell.com

Since its launch in the mid-90s, Dell’s e-commerce business has been a poster child
for the benefits of online sales, says Aberdeen Group analyst Kent Allen. The company’s
strategy of selling over the Internet – with no retail outlets and no middleman – has been
as discussed, admired and imitated as any e-commerce model. Dell’s online sales
channel has proven so successful, says Allen that the computer industry must ask: “Does
the consumer need to go to the store to buy a PC anymore?”
Regardless of the company’s past success, Dell is affected by two current trends in
e-commerce, says Forrester analyst Carrie Johnson. And only one of these trends works
in the PC giant’s favour.
The early adopters were always comfortable buying PCs online, she notes, but the
general public has taken a while to catch up. “What we know about how consumers buy
online is that they start with low-ticket, low-risk goods like books, and they eventually
begin to trust the Internet more and graduate to higher end products like PCs and travel.”
At this point, “Enough consumers have been shopping online for three or more
years that they trust the Internet to buy almost anything,” Johnson says. “Which is why
you see apparel do so well now and even computers do so well, because it’s not just the
early adopters buying online now. We’ve caught the second wave of online shopping.”
But while this trend bodes well for Dell, says Johnson, another does not: due to a
slowdown in PC sales, what’s fuelling most of the online growth [in the PC market] at this
point are second hand sales of computers. Auction sites like eBay and uBid are enjoying
thriving growth rates in PC sales, she says, in contrast to new PC vendors like Dell. So,
the challenge for Dell now is figuring out how to grow sales in a tough market.
The Front End

Launched as a static page in 1994, Dell.com took the plunge into e-commerce
shortly thereafter, and by 1997 was the first company to record a million dollars in online
sales, according to Dell spokesperson Deborah McNair.
After six strong years of online sales – widely regarded by analysts as stumble
free – Dell has racked up some impressive statistics. In the last quarter of 2002, Dell.com
logged a billion page views, a company first. According to Dell spokesperson Bob
Kaufman, about half of the company’s revenue comes from the site, which means
approximately $16 billion flowed through Dell.com in the last year.
A key part of Dell’s success, says Aberdeen’s Allen, is that the site offers consumers
“choice and control.” Buyers can click through Dell and assemble a computer system
piece by piece, choosing components like hard drive size and processor speed based on
their budgets and needs.
“Their ability to allow people to custom design has traditionally been something that
they’re ahead of the game with, and a lot of people are slowly starting to catch up now,”
Allen says. “But they continue to be viewed as the leader.”

This direct contact with consumers gives Dell a competitive advantage, explains
Notes
Dell’s McNair. “Because we know exactly what our customers are ordering, it’s a 1-to-1
proposition. We get feedback on how our site is working so we’re constantly making
tweaks to it to make the experience for our customers easier.”
Certainly Dell’s competitors see the advantage of the company’s direct model, and
to a varying degree use similar tactics. But, says Gartner analyst Mark Margevicius, “The
other vendors have legacy ties to supply chains – supply chains with distributors and
resellers. Those elements provide value and revenue to the IBMs and HPs of the world.
So, they can’t automatically switch on a dime. But those non-direct channels are also
less efficient. So, Dell had the ability to cut margin without cutting profit.”
Profit Source: B2B

While Dell’s consumer sales are highly visible, thanks in part to a high profile TV
campaign, its business sales are a much bigger revenue source. “About 15% of our total
revenue is consumer business and the rest is B2B,” Dell’s Kaufman says. “Our major
focus in the IT marketplace is selling servers, storage products, network switches and
services to corporate customers. A lot of the e-commerce engine revolves around that.”
Or, as Aberdeen’s Allen notes, “B2C keeps them in newspapers a lot, B2B keeps
them in the black.”
To facilitate B2B sales, the Dell site offers each corporate customer an
individualized interface. Using what Dell calls a Premier page, purchasing managers log
on and order using an interface customized for their company’s needs. “They place the
order, it gets routed up to whoever in their company needs to approve it, then [the order]
is sent directly to us,” McNair says.
The efficiency of the B2B system works in synergy with the consumer sales,
Kaufman says. “Remember, corporate customers are also consumers, so if they have a
good experience, they’ll come over and buy a system for their home, or vice versa.”
The Back End

Now that many e-tailers have built a customer-friendly front end, their back end
supply chain is a greater focus, says Aberdeen’s Allen. “That’s a lot of what you saw this
past Christmas: progress on making sure [e-tailers] weren’t just capturing the order but
were fulfilling the order. That’s where Dell is continuing to succeed.”
Or, as Gartner’s Mark Margevicius says, “You can give me the best e-commerce
experience but unless they’ve got the supply chain nailed, there’s no way Dell is as
successful as they are today.”
Dell’s Kaufman says the PC maker uses the Internet to provide a “constant and
seamless flow of information among all different aspects of the company to drive the
process.” The company’s back end is calibrated to respond so closely to orders from the
front end that inventory is kept to a razor-thin, four-day supply. “We build systems only
after a customer has ordered them,” Dell’s McNair says, noting that this applies to
desktop systems as well as complex server orders.
Dell has no central warehouse facility but instead ships to customers directly from its
manufacturing plants. Based on customer location, a shipment may originate from a Dell
plant in Ireland, China, Brazil, Malaysia, Texas or Tennessee.

Notes Making a Giant Bigger

As for how Dell expands from here – having built a thriving e-commerce operation,
but faced with a slow market – no analyst would hazard a definitive guess. But a recent
Dell announcement provides a clue.
Last July, the company began to experiment with kiosks in shopping malls. Since
launching the initiative, it has opened 57 kiosks in nine states. Recently, Dell announced
it is ramping up its kiosk presence by placing them in Sears stores.
The kiosks are mini-stores, about 10-12 feet wide, with basic inventory and Dell
salespeople. Dell’s Kaufman explains that the kiosks enable mall shoppers to “go in and
touch and feel some of our product and then either order right there or go back home and
order.”
So, part of the e-commerce giant’s expansion effort is geared, ironically, toward
traditional retail. Or rather, since the kiosks are tied electronically to Dell.com, they’re an
odd hybrid: a brick-and-mortar mini-store with an e-commerce option. Analysts note that
one of the advantages of the Sears kiosk placement is that, in comparison to the Dell site,
the department store’s foot traffic contains a higher percentage of women and shoppers
who are over 55.
Certainly, though, it appears that Dell’s core focus will remain its direct e-commerce
model. Perhaps the best estimate of where Dell goes from here is more of the same, just
bigger and better. As Aberdeen’s Allen observes, “With e-commerce, there’s no end.
You’re never done, it’s constantly evolving, and it has to reflect the dynamics of the
market. If anyone thinks they can catch up to Dell, there is no catching up – it’s just trying
to stay ahead of the customer.”
4.16 Further Readings

1. Internet Commerce: Digital Models for Business, Lawrence et al., Wiley
2. Electronic Commerce: A Manager’s Guide, Kalakota et al., Addison-Wesley
3. Frontiers of Electronic Commerce, Kalakota et al, Addison-Wesley
4. Web Commerce Technology Handbook, Minoli et al., McGraw Hill
5. The Economics of Electronic Commerce, Choi et al., MacMillan
6. Designing Systems for Electronic Commerce, Treese et al., Addison-Wesley

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Introduction to E-Commerce 91

Unit 4: Introduction to E-Commerce

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Amity Directorate of Distance and Online Education

Electronic Business or E-Business

4.2 E-Business Model

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Privacy and Confidentiality

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Access and Data Integrity

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4.3 Modern E-Commerce and Traditional Commerce

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Direct Interaction Notes

Credit Card Fraud

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Amity Directorate of Distance and Online Education

Amity Directorate of Distance and Online Education

4.4 Categories and Models of E-Commerce

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Business-to-Consumer (B2C) Notes

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Amity Directorate of Distance and Online Education

M-Commerce stands for Mobile Commerce wherein commercial transactions are

1. M-Commerce and E-Commerce are business transactions done online.

4.6 Applications of E-Commerce

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4.7 Barriers to E-Commerce in India

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4.8 Threats to E-Commerce

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Measures to Ensure Security

Security Protocols in Internet

Secure Socket Layer (SSL)

Secure Hypertext Transfer Protocol (SHTTP)

Secure Electronic Transaction

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Amity Directorate of Distance and Online Education

Consumer Shopping Procedure

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Disintermediation and Reintermediation

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Like any digital technology or consumer-based purchasing market, e-commerce has

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4.9 Future of E-Commerce

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Amity Directorate of Distance and Online Education

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4.11 Check Your Progress

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(c) Brand Recognition

4.12 Questions and Exercises

4.13 Key Terms

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Amity Directorate of Distance and Online Education

the bank either in full or in installments, at an interest rate determined by the

4.14 Check Your Progress: Answers

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4.15 Case Study

Case Study: Dell.com

The Front End

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Profit Source: B2B