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UNIT-I

ELECTRONIC COMMERCE ENVIRONMENT AND OPPORTUNITIES

1.BACKGROUND:

“The Internet will change the way you do Business you can’t ignore it!” are
now common.

In the past few years access to the internet has been incressing * percent per
month in the united states and Canada.

Nearly 60,000 companies and 6 million consumers worldwide used to the

internet at the end of 1996. this number is expected to jump to millions of
companies and consumers by the year 2000.

The internet’s economics and interactivity are changing the rules and leveling
the playing field: now, even the smallest companies can complete strategically with
major corporations.

Companies are using internet to conduct transactional business, to outsource,

to bypass, and to partner they’re reinventing traditional business models.

Your company must go online and must do so now.

Business have been looking for ways to increase their profits and market share
since antiquity.

Over the centuries, even the millennia business successfully sought to utilize
advances in technology to introduce and promote their products.

More recently, paper money come into use, as the transaction of large amounts
of coins becomes inconvenient. Even more recently , plastic money (credit cards and
money cards) has becomes populars, further enhancing ‘buyers’and ‘sellers’
convenience.

During the past century the telegraph, the telephone, fax and electronic mail
have provided faster, cheaper and more reliable ways of communicating business
information within and between commercial entities.

Now, what has become critical is access to a worldwide, integrated

service(data, voice, and video) communication network. this network needs to
support both the global nature of the worldwide corporation, as well as the soon to
be common electronic commerce.

Example:
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a cash transfer; a credit given; a reservation established; an analysis,

newsletter, or lecture provided; an electronic order received; or a downloaded movie
or musical clip transferred.

Example:

a just in time manufacturing order or a just in time inventory transaction.

In addition while existing standards, technology, and system for electronic

data interchange (EDI) eable fast, accurate and compact exchange of basic
formalized business transaction between different automated information system,
EDI requires rigid agreements about the structure and meaning of data.

EDI methods have worked for rigid business to business application,

particularly where a large company imposes the methods on all of its suppliers.

Emerging electronic payment methods and smart cards can make the
process of buying and selling quiker, easier, and more convenient for merchants and
consumers alike.

BASIC WEB COMMERCE CONCEPT:

Consumers are now being offered the opportunity to shop electronically or

shop over the internet.

The world wide web is one of the more prominent application supported by
the internet.

Potential markets for web commerce as large as $500 billion a year are quoted
by some, although current revenues are about $500 million per year.

It has recently gained popularity among enterepreneurs and business

executives, since the launch of the so called information superhighway formally
known as the National Information Infrastructure(NII) and the recent growth of the
internet as measured by users.

Yankee Groups forecasts about web commerce

 business to business market to reach $137 billion by 2000.

 consumer market:$10 billion by 2000.
 businesses on-line in 1995:150,000.
 businesses on-line in 2000: 2million
 In 1996, 25 percent of on-line subscribers are on-line shoppers.
 By 2000, 79 percent of Technically Advanced Families (TAF’s) and 30
percent of non-TAFs will make purchases on-line (in 1995, only 13 percent
of TAFs and 6 percent of non-TAFs did so).
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Electronic commerce encompasses several methods of connecting buyers, and

sellers, including advertising, product demonstrations, catalogs, and directories.

Web commerce is only one of a battery of on-line services that consumer may
ultimately be interested in.

Recent studies and surways show that the following are considered important
by both planners and consumers:

 Movies on demand (90/82 percent);

 Home shopping (90/70 percent);
 Video games (89/23 percent);
 Video libraries (78/81 percent);
 Home banking (70/45 percent);
 video phone (70/80 percent);and
 music on demand (55/48 percent).

Electronic commerce in general and web commerce in particular differ from

traditional commerce in the way information is exchanged and processed.
Traditionally, information has been exchanged through direct, person-to-person
contact or through the use of the telephone or mail system.

 Electronic commerce encompasses one or more of the following:

 EDI
 EDI on the internet
 E-mail on the internet
 shopping on the World Wide Web
 Product sales and service sites on the web
 Electronic banking or funds transfer
 Outsourced customer and employee care operation
 Electronic commerce
 Automates the conduct of business among enterprises their customers,
suppliers and employees-anytime, anywhere.
 creates interdependencies, between your company’s value chain and those
your suppliers and customers. your company can create competitive
advantage by optimizing and re-engineering those value-chain links to the
outside.
 The tools are electronic by the application is commerce
 Commerce is not accounting or decision support or any other internally
focused function.
 Commerce is externally focused on those with whom you do business.
 Commerce is doing business, not reporting on it or sending messages
about it.
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Fig: A definition of electronic/web commerce.

The following lists the principal opportunities available through web commerce
(as press time).

 Usage fees paid to internet service providers.

 Content fees for downloading information.
 Advertising fees.
 Transaction processing fees.

SCOPE OF THIS TEXT:

The issue discussed so far in this introduction from some of the background
environment upon which the opportunities for electronic commerce rest.

Given the broad view just painted this book aims at discussing opportunities,
technical platform, technical approaches, and technology of today’s electronic
commerce, particularly over the internet.

This book is aimed at hardware and software developers, students, business

people, planners, content providers, cyberpreneurs, and communication carriers.

The text is divided into three parts:

Part 1: paints an overall picture of opportunities, issues, and approaches at a

general level.

part 2: Focuses on security.

Part 3: Focuses on internet issues as related to stablishing web sites to support

commerce.

The attitude in this field, as expressed by practitioner is “If you’re not 15 second
ahead of everybody , you lose you’ve got to stay ahead…” This book is aimed at
helping planners and researchers do just that.

2. THE ELECTRONIC COMMERCE ENVIRONMENT:

I. THE VIRTUAL CORPORATION:

Electronic commerce goes hand in hand with changes that are occurring
in corporation. The 1990’s have seen the rise of a new form of industrial
organization. The network firm, sometimes known as the virtual organization.
Information technology (IT) has also undergone a significant change in
the past quarter of a century.
Electronic commerce is the essence of the virtual corporation: It allows
the organization to leverage information and communication resource with all
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its constituencies, including employees, customers, bankers, government

agencies, suppliers, advertisement agencies, and the public.

fig: IT evolution.

Successful companies for turn-of the century environment

 Organizational structure of the past:
vertical corporations where every function was performed in-house.
 Organizational structures of late 1980’s:
Horizontally integrated enterprises where core competencies were performed
in-house and the rest were outsource.
 Organizational structures of late 1990’s:
Corporations are moving toward being fully integrated and virtual.
 Aim at making all business function world –class in order to enhance value.
 Access to all the world’s best of breeds, skills, knowledge, and resources.
 Use combination of in-sourcing and out-sourcing to create best of breed, end-of
solution.
 overcome distance and time barriers.
 the future is a network-centric model.
 connectivity and bandwidth are becoming cheaper and easy to secure.

II.THE ELECTRONIC MARKETERS:

Electronic marketers are defined as companies that market their products and
service to other business or consumers through private on-line networks,
commercial on-line services such as prodigy and America online (AOL); The internet,
CD-ROM, telecommunication-enhanced CD-ROM, interactive television and webTV,
and floppy disk media.
Electronic commerce frees retailers and consumers from many store
constraints. It changes the dynamic in terms of cost, reach, options or speed.
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III. THE CATALUST OF ELECTRONIC AND WEB COMMERCE:

The growth of the internet in terms of people accessing it is now being viewed as one
of the greatest transformation in society in the past 25 years. even the growth and
impact of the PC was not as strong in the view of some observers.

The internet is an aggregation of network connecting computers which is seen as one

network by the user. It is the case where the whole is greater than the sum of the
parts.

Press-time studies indicate that 90 percent of the people using web service do so to
browse or explore.

70 percent search for other information.

60 percent search for information on companies/organization.

55 percent search for information on product and services. and

about 13 percent purchase product or service.

Some of the key finding of recent surveys are as follows:

 17 percent (37 million) of total persons aged 16 and above in the united states
and Canada have access to the internet.
 11 percent (24 million) of total persons aged 16 and above in the united states
and Canada have used the internet in the past three months.
 Approximately 8 percent (18 million) of total persons aged 16 and above in the
united states and Canada have used the www in the past three months.
 Internet users average 5 hours and 28 minutes per week on the internet.
 Males represent 66 percent of internet users and account for 77 percent of
internet usage.
 On average, www users are upscale (25 percent have income over $80,000/year),
professional (50 percent or managerial) and educated (64 percent have at least
collage degrees).
 Approximately 14 percent (2.5 million) of www users have purchased products or
service over the internet.
 More than 80,000 companies were using the internet for distribution of critical
company information such as press releases.
Business-to-Business marketers have an initial (but not permanent) advantage over
consumer marketers in the electronic commerce arena because the penetration of
PCs with modems CD-ROM drives and internet account tends to be higher in the
business market than in the consumer market.
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IV. AVAILABLE COMMUNICATION APPARATUS:

Electronic commerce clearly depends on the availability of reliable, in
expensive, and ubiquitous connectivity.
In this context there are five relevant elements:
1. Organizations own enterprise network which house appropriate
information, usually beyond the organizations firewall apparatuses.
2. Public switched telephone network.
3. the internet.
4. On-line networks such as America online, which utilize their own
communication and information (storage) facilities.
5. Specialized industry networks, such as those to support EDI.

V. APPLICATION OF ELECTRONIC /WEB COMMERCE:

Electronic commerce combines the advantages of computer-based
processing (speed, reliability, and relatively high volumes of data) with the
advantages of people based insight (creativity, flexibility, adaptability).
Electronic commerce enables peoples to review, analyze, add value,
and sell a variety of products. that are represented electronically, such as
reference material, textbooks and training materials, entertainment and
software.
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There are three tiers in the electronic market place:

TIER 1: Electronic classified advertisements, which identify the items (or service) for
sale, the price, and information necessary for contacting the seller.
Electronic classified are analogous to print classified and are retrieved by the
potential buyers.

TIER 2: Includes the characteristics of the first tier, but adds decision support
materials to the information available which help the user reach a purchase decision
such market places may include such information as product reviews from an
industry magazine.

TIER 3: Include the features of the first two tiers, but adds the ability to
electronically match appropriate buyers and sellers.

Application of electronic commerce can include the following:

 Electronic funds transfer
 Enterprise integration
 Computer supported collaborative work
 Government regulatory data interchanges

3. ELECTRONIC MARKETPLACE TECHNOLOGIES:

Each of the possible electronic commerce media identified in the previous

section has distinct advantages that limit or improve its potential in creating an
effective market place.

i. ELECTRONIC DATA INTERCHANGE:

 EDI is the exchange of defined business transaction in a computer
processable format.
 EDI provides a collection of standard message format to exchange data
between organizations computers via any electronic service.
 In 1979, the American national standards institute (ANSI) chartered the
Accredited standards committee X12, the Electronic data interchange to
develop uniform national standards for electronic interchange of business
transaction.
 United nations/Electronic Data Interchange for administration, commerce,
and transport (UN/EDI FACT) standard massage have been developed under
the auspices of the united nations.
 EDI covers such traditional business facetors as inquiries, planning,
purchasing, acknowledgement, pricing, order status, scheduling, test result,
shipping and receiving, invoices, payments, and financial and business
reporting.
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ii. ON-LINE NETWORKS AND SERVICES:

 On-line services provide access to information entertainment,
communication, and transaction service.
 In general, this term refers to networks by companies such as America online,
compute serve, and prodigy.
 The public-switched telephone network is the typical distribution system.
 cable networks, satellite, wireless networks and unused protion of FM radio
and broadcast TV signals may also be used.
 The on-line environment presents challenges as well as opportunities to a
marketers.
 On-line service have historically been subscriber-driven and noncommercial.
The primary revenue source for the majority of on-line service is subscriber
fees. This method has not supporting electronic commerce.
 On-line networks allow users to search content and conduct transaction
typically using a GUI.
iii. THE INTERNET: WEB COMMERCE:
The use of the internet was already discussed in the context of recent
catalyst to electronic commerce and in the context of available network
technologies.
The internet is quickly becoming a populars commercial domain for
business marketers, driven by the advent of low-cost commercial point and
click internet software and world wide web browser.
The fastest growing part of the internet at this time is the world wide
web.
The internet offers an extensive and demographically attractive
potential audience, especially for business-to-business marketers.
One consideration on the part organizations and planners is the
availability and price of web skills required to support web commerce site
development. Some points to consider are as follows:
 Job duties for such individuals are constantly “morphing”.
 Internet and intranet positions are hot. People who know how
to link legacy system and database and who have Hypertext
Markup language (HTML) experience and Common get way
Interface (CGI)* background are in demand.
 The market will explored within the next 5 to 10 year.
 Press-time salary range are as follows:
 Internet researcher: $25 to $40,000
 HTML programmer: $35 to $65,000
 Content specialist: $27 to $60,000
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 Web designer: $42 to $75,000

 Webmaster: $46 to $77,000

iv. CD-ROMs AND HYBRIDS:

The Multimedia and storage capabilities of CD-ROMs and the growth
in the penetration of CD-ROM drives in both businesses and home PCs are the
resons why business to business and consumer marketers sought to use the
CD-ROM as a marketing vehicle in the recent past.
CD-ROM can store large amounts (650mb or more) of data in text
and/or graphical form.
In addition, the CD-ROM provides the ability to add sound, photos
and full motion video to a marketing interaction beyond what is offered by
the on-line medium over the telecommunication link.
v. SCREEN PHONES:
Screen phones are similar to regular telephones but have readers,
small screens, and keypads that can be used for a variety of interactive,
transactional, and information services.
Typical service include home banking, home shopping and electronic
white pages.
Companies such as PC flowers, Ameritech, bell atlantic, and bell
south have tested screen phones for home banking and shopping service.
vi. KIOSKS:
Kiosks are displays used to provide merchandise information in a
remote location, such as retail store or a shopping mall.
kiosks employ a variety of technologies to deliver multimedia
marketing information. Most kiosks allow the consumer to order products
directly from the unit by using a magnetic credit card reader, touch screen, or
keypad.
vii. WEB TV:
A new technology called web tv by some and intercasting by others,
was seeing deployment at press time. This approach is yet another vehicle for
electronic commerce.
Television signals pauses called vertical blanking intervals(VBI) to
allow for the electron beam that creates the picture in the CRT (cathode ray
tube) to move from the bottom of the CRT to be top of the CRT.
viii. INTERACTIVE BANKING:
Many banks are offering another from of electronic commerce known
as interactive banking.
Using a touch-tone telephone, customers can check their account
balances, pay bills, order statements and so forth.
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The other end of the spectrum, banks without branches are now
becoming available on the internet.

EXAMPLE:
Atlanta internet bank (AIM) offers interest bearing checking, direct
deposit and electronic bill payment over the web.

A. MODES OF ELECTRONIC COMMERCE:

 Online catalogs
 Virtual superstores
 Manufacturers
 On-line stockbrokers
1. OVERVIEW:
a) What is electronic commerce?
Commerce is the interchange of goods or service, especially on a large
scale.
In the past trading typically took place face-to-face between parties.
Over the centuries and decades, trading has continued to become
more sophisticated.

b) Some open Issues:

Although there are traditional concerns about credit fraud and bank
embezzlement, the potential for high-volume fraud and automated
fraud is greater in e-commerce with the introduction of public network
computerized transaction.
Mechanisms to pay for goods and services to on-line merchants and
the introduction of new products and service add an additional degree
of financial risk to sending financial information across public networks.
2. ELECTRONIC DATA INTERCHANGE:
1) What is EDI?
EDI is defined as the interorganization exchange of documents in
standardized electronic from directly between computer application.
Examples of typical business documents include purchase orders, invoices,
and material releases.
The key aspects of EDI are as follows:
 The utilization of an electronic transmission medium(normally a VAN) rather than
the transfer of physical storage media such as paper, magnetic tapes, and disks.
 Use of structured, formatted messages based upon agreed standards(such that
messages can be translated, interpreted, and checked for compliance with an
explicit set of rules).
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 Relatively fast delivery of electronic documents from sender to receiver(generally

implying receipt within hours or minutes).
 Direct communication between application (rather than just between system).

EDI can fit a business transaction continuum. the processes involved in a

typical seller-buyer transaction.

2) EDI’s benefits:
 Business can secure many benefits when utilizing EDI. however investment
will be necessary in order to achieve lower costs and planning and control is
needed to ensure that the saving are actually realized
 Cost savings arise in relation to the preparation, postage and handling of
mainstream transaction or in secondary but expensive area such as the
preparation and dispatch of application for approval by a regulatory
authority or other reporting functions.
3) STATUS:

In recent years the technology underlying EDI having matured and the economics of
EDI application have improved to the point that an increasing number of
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organizations are seeing opportunities for cost savings, improved service and
competitive advantages.

EDI has been growing in the recent past although the penetration is
still low.
YEAR COMPANIES PENETRATION
USING EDI (AGAINST 5MILLION
POTENTIAL )(%)
1987 1,000 0.02
1988 4,500 0.09
1989 5,500 0.11
1990 12,000 0.24
1991 21,000 0.42
1992 32,000 0.65
1993 58,000 1.16
1994 70,000 1.40
1995 80,000 1.60
1996 1,00,000 2.00
fig: EDI penetration.
Roll out cost factors include the following:
 Reaching a legal agreement between the parties regarding
responsibilities and dispute settlement.
 Building and installing the EDI system
 Modifying and interfacing with the existing computer system.
 Obtaining network services
 Testing and installing
 Reengineering internal processes with the goal of taking full advantages
of the technology
 Training
4) SYSTEM OPPROACH:
There are a number of ways in which computers can be set up to
support EDI. A single dedicated PC can be used as the company’s link to the
outside world.
Types of software packages that would make up an EDI terminal on a
PC include the following:
 Application software
 Message translator
 Routing manager
 Communication handler

Using a PC with a dial-up modem is an easy way to start using EDI.

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5) COMMUNICATION APPROACH:
 Although dial-up is an entry-level mode approach to using this technology,
sophisticated application of EDI require a more elaborate communication
infrastructure.
 The VAN networks used by companies in a conventional EDI environment are
limited in functionality and scope.
 A VAN was a telecommunications network primarily for data, which process or
transformed data and information in some manner, and thereby provided
service beyond simple transport of information.
 Pricing VAN service is not a travel task, because as technology changes, the
balance of power between users and service providers changes.
 VAN have also responded to competition by adding services, including support
for TCP/IP,SNA and multimedia.
3. MIGRATION TO OPEN EDI:

It appears that the internet and the transition to what is called by some open EDI
will change the economics of EDI by reducing setup and rollout costs.

i) APPROACH:
The development of open EDI enables several types of rollout strategies.
generally users can be classified into two groups.
 The first group is composed of users (individuals or companies) who are not
currently EDI users.
 The second group is composed of companies currently using EDI.
This presents three migration paths to users:

 A nonuser becoming a private network/VAN user.

 A non-EDI user who can make a direct transition to open EDI.
The factors driving migration are as follows:

 The cost of using EDI service

 The demands of customers
 The opening up of market opportunities

Migration from non-EDI to EDI operation is generally driven by the demands of

dominant organization.
ii) BENEFITS:

There are a number of benefits to supporting EDI on the internet. the key benefit
relates to the cost of transferring EDI messages on the internet compared to
transferring these messages on a VAN.

Internet access providers charge an average of about $30.00 per month for a
SLIP/PPP(serial line internet protocol /point-to-point protocol) account that gives
users a access number and unlimited (or at least a large number of ) hours of
internet connect time.