Electronic Commerce Basics
Defining Electronic Commerce
Although much of this course focuses on using the World Wide Web, it is important to state at the
outset electronic commerce is more than web−commerce. It involves all types of communications
technology, including the WWW, email, private bulletin board systems or value−added networks,
intranets and extranets. It uses all forms of communications technology, even television, fax and
telephone.
Electronic commerce is more than selling stuff online; it's using online resources and tools to do
business better−−more efficiently and productively. It's about making and saving money online.
E−commerce can work for any business because it involves the whole business cycle from
production, procurement, distribution, sales, payment, fulfillment, restocking, and marketing. It's
about relationships with customers, employees, suppliers, and distributors. It involves support
services like banks, lawyers, accountants, and government agencies.
According to the Census Bureau: "E−commerce (or electronic commerce) is any business transaction
whose price or essential terms were negotiated over an online system such as an Internet, Extranet,
Electronic Data Interchange network, or electronic mail system."
Electronic Commerce Means E−Business
According to J. G. Sandom, OgilvyOne Worldwide:
An analysis of leading corporate web sites reveals that the most successful sites
understand how to exploit and integrate the following e−business functions:
♦ E−Communications −− Expressing the brand(s) in cyberspace, along the
entire sales cycle
♦ E−Service −− Delivering value−added, interactive services to key
constituencies
♦ E−Commerce −− Enabling transactions
Source: ClickZ: Step−By−Step To Strategic Web Site Development
E−business involves:
• Strengthening relationships with customers and suppliers
• Checking out the competition
• Developing new product ideas and sources
• Dealing with government at all levels
• Re−designing business processes and management systems
• E−tailing or selling goods and services online
Recommended reading :LinkUp, "E−Commerce" by Wallys W. Conhaim. Part One and Part Two.
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The Internet Economy
According to a study by SmartEcon.com the Internet economy is made up of the following layers:
♦ Infrastructure: creating and maintaining the network itself
Backbone, ISPs, networking hardware and software, PC and server makers,
security vendors
Examples: Cisco, Qwest, MCI Worldcom, Lucent, Dell, Compaq, Sun, AOL,
Checkpoint
♦ Applications: providing products and services that make ecommerce possible
Consultants, commerce software, multimedia applications, web development
software, search engines, online training, web−enabled databases
Examples: Scient, Microsoft, RealNetworks, Adobe, Macromedia, Verity,
Inktomi, Oracle
♦ Intermediaries: facilitating buying and selling over the Internet
Market makers, online brokerages, online travel agents, content aggregators,
portals, ad brokers
Examples: VerticalNet, Expedia, CNET, Internet.com, Yahoo, Doubleclick
♦ Commerce: selling goods and services to business and consumers over the
Internet
E−tailers, manufacturers selling online, fee/subscription services, airlines
selling tickets online, online entertainment and professional services
Examples: Amazon, Cisco, Dell, Dow Jones, Delta Airlines, Disney, H&R
Block
Source: Measuring Internet Economy
Some companies, like IBM, Microsoft, and AOL, are involved in more than one segment.
The study states that the commerce layer was composed of more than 11,000 companies in 1998. The
authors point out that the typical web−commerce study focuses on the top 50−100 companies. "...the
top 80 players at the Internet commerce layer contributed only a third of the layers revenues." The
so−called "dot−coms" make up only a small percentage of the companies that compose the Internet
economy.
The study's key findings include:
• Internet Commerce is much bigger today than any previous estimates.
• The Internet Economy is growing at an astounding rate.
• The Internet Economy already rivals century−old industries.
• The Internet Economy has had a major impact on jobs and responsibilities.
• Infrastructure and applications players make up over half the Internet Economy.
• Internet intermediaries are critical to Internet Economy growth.
The Internet Job Market
More than 3 million workers are now employed in the Internet economy, which contributed $830
billion to the US economy in 2000. Many are employed in jobs that didn't exist before the mid−1990s:
webmaster, ecommerce developer, streaming media specialists.
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According to the Gartner Group, the 10 most powerful positions within an enterprise will emerge
between 2003 and 2010. These positions are listed below.
♦ Chief monitoring officer − monitoring business processes and metrics in real
time
♦ E−marketplace manager − guiding through the new networked economy
♦ Marketing executives − spending on customer relationship−focused solutions
♦ E−deal makers − choosing the suppliers
♦ Customer relationship analytic expert − looking into the future and to see
what people want before they need it, and the reasons why
♦ Transaction cops − making sure there is integrity in the transactions
♦ Human resources executives − assuring the supply of skilled workers
♦ E−business integrators − transforming legacy processes to networked
economy processes
♦ Economists − telling enterprises when to take risks and when to shy away
from them
♦ Anthropologist − diagnosing and describing
Source: Gartner Group
Update: The current employment picture is less rosey due to the collapse of many dot.coms, the
re−evaluation of technology stocks and companies, the current recession, mismanagement of public
and private monies, and war in the Middle East. Nonetheless, technology drives the American
economy and is likely to do so in the future. eCommerce and the Internet are definitely a part of that
future.
Changing Internet Population Demographics
The profile of the typical Internet user is changing rapidly. Significant recent changes include:
• The Internet, especially the World Wide Web, is now a consumer
medium. A high level of technical skill is no longer required to use the
Net effectively.
• Low cost Net appliances, like WebTV, are bringing the Internet to
homes that don't even own computers; community centers, libraries,
and coffee houses offer free or low cost access to all comers.
• Using the Internet to research a major purchase is becoming
commonplace. Intelligent agents like Active Buyer's Guide aid
comparison−shopping.
• Wireless access to the Internet is popular in Japan and Europe but
hasn't caught on in the United States.
Boundless Enthusiasm
A visit to the CyberAtlas Statistics Toolbox reveals that market research firms are producing surveys
of Internet use at a dizzying rate. Even more dizzying are the prognostications based on these
statistics.
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Jupiter reports that electronic commerce transactions in 1996 amounted to $12M, but by 2002
BizRate.com was projecting almost $48 billion in retail online sales−−a year over year growth rate of
32%. Almost $8 billion was spent online during the 2002 holiday season−−after 9/11, in the midst of
a recession, amid rumors of war. eCommerce has grown up.
Digital Divide?
The Digital Divide is the catchy term for the gap in opportunities experienced by those with limited
access to the Internet.
The Internet is becoming an increasingly vital tool in our information society. More
Americans are going online to conduct such day−to−day activities as education,
business transactions, personal correspondence, research and information gathering,
and job searches. Each year, being digitally connected becomes ever more critical to
economic and educational advancement and community participation. Now that a
large number of Americans regularly use the Internet to conduct daily activities,
people who lack access to these tools are at a growing disadvantage. Therefore,
raising the level of digital inclusion by increasing the number of Americans using the
technology tools of the digital age is a vitally important national goal.
Source:Falling Through the Net: Toward Digital Inclusion
The Digital Divide seems to be a significant obstacle for minority populations when we look at access
from work or home.
Work/home
Group
All places
70%
White Americans
76%
60%
African Americans 74%
48%
Hispanic Americans 65%
Source:Arbitron and Edison Media Research
What made the difference? Free access provided by US libraries and schools. While the rate of
growth in Internet use among white Americans has slowed, it is increasing rapidly among minority
populations. By February 2003 over 10 million African Americans were online and Hispanic access is
growing rapidly.
Another rapidly growing online population is senior citizens. They have the leisure and, for the most
part, the money to be avid online shoppers and bargain hunters.
Most Valuable Internet Segment?
A recent free report from The Wall Street Journal Online and eMarketer, An Elephant in the Room:
The Online At−Work Audience, identifies perhaps the most valuable segment of the online
population−−the 50 million Americans who are online at work. 60% of consumer online dollars are
spent in the work place. The size and buying power of this group coupled with it's tendency to use the
Net to research purchases makes it a key focus of advertizing and marketing efforts. It's a daytime
audience that's different from but just as significant as the daytime television audience in terms of
buying power. Report highlights include:
• More than one−third (37%) of working Americans now go online regularly at the office
• 70% of at−work Internet users have a college degree or higher
• 86% of at−work Internet users have broadband access at their work place
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• Roughly half have household incomes of $75,000 or more
• 38% of at−work users are employed by large companies, while nearly 40% come from small
businesses
• At−work users spend more time online than at−home only users; business executives are
particularly heavy Internet users
Changing Internet Business Demographics
Small business drives much of the American economy. According to Small Business Administration's
Office of Advocacy:
Small businesses . . .
• represent more than 99% of all employers
• employ 51% of private−sector workers, 51% of workers on public assistance, and 38% of
workers in high−tech jobs
• represent nearly all of the self−employed, which are 7.0% of the work force
• provide two−thirds to three−quarters of the net new jobs
• produce 51% of private−sector output
• represent 96% of all exporters of goods
• obtain 33.3% of federal prime and subcontract dollars
• are 53% home−based and 3% franchises
Sources: U.S. Department of Commerce, Bureau of the Census; U.S. Department of Labor, Bureau of
Labor Statistics; Advocacy−funded study by Joel Popkin &Company; U.S. Department of Commerce,
International Trade Administration; SBA Office of Government Contracting.
How can small businesses profit from eCommerce?
Much of the hoopla surrounding electronic commerce is based on the notion that selling additional
products and services will contribute the most to the bottom line. Little attention is given to the
cost−saving potential of e−commerce, which may have a much greater impact on profits.
According to the Commerce Department's The Emerging Digital Economy II study:
Businesses in virtually every sector of the economy are beginning to use the Internet
to cut the cost of purchasing, manage supplier relationships, streamline logistics and
inventory, plan production, and reach new and existing customers more effectively.
Both large and small businesses are better prepared than consumers to use electronic commerce
systems on the Internet. They often have experience with EDI, use purchase orders instead of credit
cards, and have well−established relationships with the many online vendors.
Ecommerce Segments: Alphabet Soup
• B2B: Business to Business
• B2C: Business to Consumer
• B2G: Business to Government
eMarketer's March 2003 report, E−Commerce Trade and B2B Exchanges, predicts that worldwide
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B2B eCommerce revenues will surpass $1.4 trillion by the year end. The US B2B will account for
over one−half of the worldwide total. B2B ecommerce outpaces both the B2C and B2G segments.
Small businesses can participate in any of the segments, but micro businesses are more likely to go
after the consumer market.
Small Businesses Online
One of the most comprehensive studies of small businesses online was completed in 2001 by National
Federation of Independent Business. The findings include:
• 57% of all small employers use the Internet for business−related activities. The most
common business applications of the Internet in small firms are communicating by e−mail
with suppliers and customers and gathering business−related information, such as prices, new
products, etc.
• 61% of small employers on the Internet (35% of all small employers) report they have a
business Web site. Most were created recently.
• Small−business Web sites most often generate income indirectly. They stimulate potential
customers to buy, but the actual transaction usually occurs in the small employer's place of
business or by phone, fax, or e−mail. Just 24% with a Web site report sales made directly
from their sites.
• The overwhelming majority of sales made directly over the Internet by small businesses are
made to consumers and non−business entities.
• The cost of creating and operating a Web site, both in direct outlays and employee hours,
appears modest.
• The most frequently noted benefit of a Web site is additional customers. However, just eight
percent feel the site has increased business profits.
• The most frequently cited reason for not having a Web site (by those on the Internet, but not
having one) is that their products or services don't lend themselves to sale on the Internet.
The next most frequently mentioned reason is that they simply don't see any benefit in having
a site. However, nearly half expect to have one in the next 12 months.
• One−third of those not now using the Internet for business−related activities expect to be on
the Internet within the next 12 months.
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Source: The Use and Value of Web Sites, National Small Business Poll, National Federation of
Independent Business, 2001
Perhaps the most puzzling finding was the lag in website creation by small businesses. A 2002
Verizon survey found that almost 70% of small businesses don't have Web sites. Yet 20% of all
Internet users have personal websites (many of them blogs). Websites don't have to be expensive,
complicated, or time−consuming. They are pretty much whatever you want them to be. Small
business owners evidently do not subscribe to the Field of Dreams model of eCommerce: Build it and
they will come.
On the horizon: The 2002 Economic Census survey forms were due February 12, 2003. The survey
included questions about electronic commerce. The Census report will be available in 2004 and may
show the impact of ecommerce on small businesses nationwide.
What Do People Do Online?
A "killer app" is a computer application that satisfies an unrecognized need and launches a new series
of products and activities. For a long time, email has been widely thought to be the Internet's "killer
app." Some believe that electronic commerce will be the real "killer app" for the Internet in the
coming century.
According to Jesse Berst of ZDNet, the most popular web activities are:
1. Searching for
information
2. Reading news &
sports sites
3. Managing careers
4. Learning something
new
5. Downloading
software
6. Travel
7. Socializing: chatrooms and
forums
8. Making money
9. Playing games
10. Shopping online
Source: ZDNet Anchordesk, Special Report: Your Top 10 Favorite
Web Activities
Another Look at Shopping
While Berst's list of activities is interesting and his articles fun to read, online shopping is likely to be
more popular than he indicates. If you include researching products and companies as an integral part
of the shopping experience, then some of the searching activity and news reading is actually
shopping.
A Nielson Media survey found that in 1998 some 20 million Americans bought products and services
on the Internet. This finding sounds like ancient history since the number of online buyers has almost
quadrupled since then.
According to a Pew Internet & American Life Project report, the fastest growing online activities have
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a distinctly commercial flavor. Americans are increasingly likely to use the Internet to purchase
products or services or to obtain information about them.
eCommerce has definitely moved away from computer software and hardware to the everyday
shopping.
Online Shopper Profiles
The ClearCommerce e*guide: an electronic commerce tutorial identified seven types of online
shoppers:
1. Directed Shopper−−knows what they want and shops quickly for it
2. Category Shopper−−selects certain categories and excludes most others
3. Gift Giver−−buys lots of gifts and visits flower and gift sites frequently
4. "Gotta Have It" Impulse Buyer−−wants latest and greatest
5. Browser−−just looking−−needs to be converted to a buyer
6. Bargain Hunter−−very price sensitive
7. Information Seeker−−goes online to learn more about products
The Direct Shoppers, Bargain Hunters, and Information Seekers dominate the web−shopping
landscape today. The first two are most likely to be drawn to the larger online merchants. The
Information Seekers may begin as Bargain Hunters but be open to buying better and more expensive
products given the right information.
Where do online users start their online shopping?
♦ A specific merchant (54%)
♦ A comparison shopping site (22%)
♦ A search engine (11%)
♦ A shopping portal (8%)
♦ An auction site (5%)
Source: Online Holiday Sales On Target, BizRate.com, December 26, 2002
Multi−Channel Retailers
Multi−channel retailing uses a mix of website, store and catalog to entice buyers and generate sales.
Physical stores can add much needed customer service for returns, gift certificate redemption, and
in−store pick−up of online orders. Websites can move older merchandise or generate a buzz. Catalog
shoppers often have the catalog open in front of them as they navigate a store's website. What's the
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bottom line impact of multi−channel shopping?
♦ Shoppers using one channel spent $591
♦ Shoppers using two channels spent $894
♦ Shoppers using three channels spent $995
Holiday Shopping Study, DoubleClick, January 2002
♦ Internet only shoppers $121/yr.
♦ Catalog only shoppers $242/yr.
♦ Retail only shoppers $194/yr.
♦ Tri−channel shoppers $1,000+/yr.
JC Penny Study
Source: Center for Media Research − Daily Brief, 12/27/2002
According to Pew Internet and American Life Project research:
• 47% of Internet users say that if a store provides product information online, even if it doesn't
sell goods at its Web site, this would make them more likely to go to the physical store to buy
the product.
• 63% of all Americans expect that a business will have a Web site that gives them information
about a product they are considering buying; 79% of Internet users say this compared to 38%
of non−users.
These are the shoppers that are most likely to be multi−channel users and generate the most sales for
those channels.
Consumer Readiness for Electronic Commerce
Given the current flurry of e−commerce stories in the media, including the Net itself, one would think
that electronic commerce was something brand new. The fact is that Americans have been avid
consumers of electronic commerce products and technology for quite some time. Many bank at home,
have their paychecks deposited electronically, use ATMs frequently, and even buy their groceries
with credit cards. As part of its strategy to encourage electronic filing, even the IRS began accepting
credit card payments in 1999.
Nonetheless, consumers remain leery of the Net−based commerce and question how secure an
environment it is for financial transactions. Part of the fear is based on the tendency of local television
news programs to use Internet horror stories to boost ratings during "sweeps" weeks. Viewers are led
to see the Internet as a no−man's land peopled by hackers, pedophiles, crazies, and scam−artists. The
fact is that the Net does have its share of these folks, so does your own neighborhood.
As consumers learn to use the Internet and recognize the genuine value of shopping on it, they will
begin to trust it. They may start with familiar places like the web interface to their bank or broker, or
they may shop at places they know well like J.C. Penney or Sears. Later they may get adventuresome
and buy a book or two at amazon.com. Suddenly, shopping on the Net will be as easy as buying from
a catalog or visiting a mall.
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In addition to their credit cards, consumers will carry various smart cards (phone cards, library copy
machine and checkout cards, McDonalds/Northwest Airlines Eat−and−Fly cards). They may use a
combination debit and smart card to buy both Wal−Mart merchandise and Wal−Mart stock. They may
buy a smart card reader for their desktop, laptop, handheld, webbified television, or glove
compartment so they will be able to conveniently use their electronic wallet and digital small change.
Cell phones and PDAs will be used for email, picture taking, and electronic commerce. Penny jars
will become the stuff of folktales as grandparents tell their grandchildren how they used to save the
chump change of the non−digital age.
Security
In January 2000 President Clinton announced plans for the National Plan for Information Systems
Protection to meet emerging threats to America's computer systems and networks.
The United States has benefited from the most advanced information technology (IT)
infrastructure in the world. This same IT infrastructure, however, makes us
particularly vulnerable to cyber attack. The most vital sectors of our economy −−
power generation, telecommunications, banking and finance, transportation and
emergency services −− are potentially susceptible to disruptions from hackers,
terrorists, criminals or nation states. President Clinton has increased funding on
critical infrastructure substantially over the past three years, including a 16% increase
in the FY2001 budget proposal to $2.03 billion.
Source: Promoting Cyber Security for the 21st Century
This work is vital to safeguarding America's defense, infrastructure, and economic security. A wide
range of security concerns exist:
• Disruption or denial of service attacks
• Defacing web sites
• Unauthorized use of credit cards
• Invasion of privacy−−especially related to minors
• Unauthorized changes to database records
• Fraud
• Misuse of data about vulnerable populations
• Spreading viruses
• Employee misuse of the Net
• Employee privacy
• Email harassment
The security vulnerabilities affect both individuals and groups, public and private entities, and both
large and small organizations.
Secure Transactions
Secure email and web transactions are important for not only e−commerce but also for Internet
enabled healthcare, education, government services, and even entertainment.
Secure e−commerce transactions require web servers and browsers that can handle:
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• Digital certificates that are confirmed by a third−party Certification Authority and attest to a
web site's real identity
• Secure Socket Layer (SSL) protocol that enables encryption (Look for https instead of http in
the URL)
• Digital payments that are likely to be credit card transactions but may take another form
Digital certificates are handled quickly and quietly by server and browser unless there is some sort of
problem, in which case the user is notified. When the SSL protocol is invoked, the user is notified and
the image of a closed lock may appear on the browser screen.
Note that secure transactions require that all parties use up−to−date software and hardware. Since
consumers are the weakest link, organizations offering e−commerce must take special care to alert
them about possible security problems. For example, www.buyandhold.com issued a security alert
because some older versions of Netscape Communicator and Microsoft Internet Explorer include a
root CA certificate set to expire at the end of 1999. The alert encouraged visitors to upgrade their
browsers.
As part of its Staking Your Claim in the E−Commerce Gold Rush series, webreview.com included a
step−by−step account of an online purchase as seen from the perspective of both customer and
vendor.
Key customer−related elements include:
• Uses a search engine to find product and vendor's web site.
• Looks for signs that web site is legitimate.
• Browses the product catalog.
• Selects purchases and clicks shopping cart icon.
• Transfers to secure https page and enters credit card info which is encrypted and sent to
processor. Receives email confirmation.
• Receives email notification that item was shipped.
• Product arrives and buyer is satisfied with safe, secure online purchase.
It's important to make your customers feel comfortable about ordering online. For some, the sight of a
familiar logo from a trusted source like Verisign or Trust−e will be sufficient; others will need more
information about you and your ordering system. Read the Security page on the National Academy
Press website for a good example of the type of information that helps customers.
New Security Related Services
According to Citibank's Dan Schutzer, "in the near future, we should see a broad range of new
value−added electronic commerce services, including the following built around trust and security:"
♦ Authentication over public networks;
♦ Certification of information, parties, and transactions;
♦ Performance bonding;
♦ Electronic escrow;
♦ Automated dispute resolution;
♦ Transaction insurance;
♦ Appraisal services;
♦ Various electronic broker services; and
♦ Trusted agents to resolve disputes and claims.
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Source: "Electronic Commerce" in The Unpredictable Certainty: White Papers, NII
2000 Steering Committee, National Research Council, 1998.
Living with Insecurity
Trust in Cyberspace is a study by the Committee on Information Systems Trustworthiness of the
National Research Council. The Committee's mission was "to assess the nature of information
systems trustworthiness and the prospects for technology that will increase trustworthiness." The
study assesses current security practices and outlines a new research agenda.
"It is time to challenge this paradigm of "absolute security" and move toward a model
built on three axioms of insecurity: insecurity exists; insecurity cannot be destroyed;
and insecurity can be moved around."
This suggests that we need to become a bit more comfortable with uncertainty and ambiguity. At the
same time we need to know where we are vulnerable and who can help us.
Surfer Beware: Privacy Issues
Privacy is an issue that generates fierce debate. Some people consider every smidgen of information
about themselves as private information that should not be available without consent. Other folks
adopt the attitude that it's already too late to protect their privacy. Privacy is an issue where the
interests of the individual and society must be balanced carefully. The database−centric web is
especially adept at collecting data about visitors.
President Bush has publicly affirmed the right to privacy.
"I believe privacy is a fundamental right, and that every American should have
absolute control over his or her personal information," Bush has said. "Now, with the
advent of the Internet, personal privacy is increasingly at risk. I am committed to
protecting personal privacy for every American and I believe the marketplace can
function without sacrificing the privacy of individuals."
Source: Ecomworld. com: "The Bush Administration's Plans for E−Commerce"
Unfortunately few Americans realize just how much data about them is available on the Internet at
little or no cost.
• www.anybirthday.com: Offers a searchable database of 135 million American birthdays
• Many states offer public registries of individuals currently in the corrections system
(Example: Minnesota)
• Property tax assessments are online for most large counties (Example: Hennepin County,
Minnesota )
All of this information is public data but the Internet makes it easy to obtain. Meanwhile sites like
CourthouseDirect.com and Search Systems list an amazing array of free public databases for every
state and county in the U.S. In spite of President Bush's commitment to personal privacy, most
Americans will find that 2001 was the year they lost their illusion of personal privacy online.
The Anonymizer offers a number of services including anonymous surfing. If you want to see just
how much information about you and your computer/internet use is available via the Web, visit the
Privacy Analysis of Your Internet Connection page. You may be a bit surprised by the results.
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Who wants the information?
• Market research firms
• Commercial enterprises
• Media
• Schools, churches, professional and affinity organizations, government and non−profit
agencies
Who wants to protect the information?
• Privacy conscious individuals
• Any organization possessing confidential information
• Government agencies when constrained by data privacy rules and statutes
In June 1997, Electronic Privacy Information Center issued a report on the privacy policies of the 100
most frequently visited websites titled: Surfer Beware: Personal Privacy and the Internet. The report
pointed out the few sites that had explicit privacy policies that informed visitors about how and what
information is collected about them. Information about visitors is collected via "cookies" (a browser
feature used to recognize visitors), registration forms, surveys, and shopping carts. TRUSTe offers a
Sample Privacy Statement as well as a free Privacy Statement Wizard.
The Children's Online Privacy Protection Act became effective April 21, 2000. Any web site that
collects personal information from children under 13 must display a privacy notice and a similar
notice for parents. Before collecting, using or disclosing personal information from a child, an
operator must obtain verifiable parental consent from the child's parent. See How to Comply With
The Children's Online Privacy Protection Rule for more information.
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Your Personal and Corporate Security Team
When a subject is as complicated as Internet security, it is important to know that you aren't alone
facing it. Whether or not you realize it, you already have a team of experts working on making the
Internet and especially the World Wide Web a safer place.
Organization
International Standards
Groups
Web Hosting
Service
Internet Service
Provider
Responsibilities
• Adopt security standards and update them as needed
• Make standards information available to all interested
parties
• Install security patches to operating systems and server
software
• Backup web sites regularly
• Keep web sites up and running
• Update related software (ex. middleware) as needed
• Report security breaches to proper authorities (CERT,
FBI, etc.)
• Warn customers of potential security problems
• Install security patches to operating systems and server
software
• Backup email servers regularly
• Help prevent SPAM
• Report security breaches to proper authorities (CERT,
FBI, etc.)
• Warn customers of potential security problems
Software Companies
• Provide security patches and software updates
• Warn customers of potential security problems
Web Design Firms
• Include security measures when designing the site
• Install security patches as needed
• Warn customers of potential security problems
Your Company
• Pay attention to security alerts
• Visit update and support sections of software vendors
regularly
• Install security patches as needed
• Backup critical systems on a regular schedule
• Report security breaches to proper authorities (CERT,
FBI, etc.)
Others concerned with the security of web−based e−commerce include: government agencies, credit
card companies, digital certificate companies, professional associations, consumer advocacy groups,
etc. All of the organizations are concerned with providing secure online commerce.
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Recent Developments
E−commerce is a Growth Industry!
Government agencies, media conglomerates, financial institutions, and professional organizations
have read the writing on the wall: E−commerce is a Growth Industry!
Many of these organizations have banded together to carve out a piece of the e−commerce pie for
development, standardization, and experimentation. Some try to put new wine into old bottles, like the
Net savvy Better Business Bureau. Others create new roles (and income streams) by offering to be
trusted sources, like the CPAs with www.cpawebtrust.org.
The e−commerce revolution also affects individual careers. About ten years ago when organizations
began to appoint CIOs or Chief Information Officers, these were the cutting edge jobs with perks and
options to match. Today, the hottest new corporate job is director of e−commerce.
Electronic Data Interchange
Large corporations have been using EDI, a form of electronic commerce, for quite some time.
Electronic data interchange (EDI) relies on form−based transactions between computers without
human intervention. These transactions take place over secure private networks known as
value−added networks (VANs). Some Internet retailers rely on VANs to communicate with suppliers.
Internet bookseller Amazon.com, for example, uses Sterling Commerce software on
its back end to communicate with publishers and other suppliers...
Source: CNET News.com Net−based commerce on the rise
DOT.COM Failures
The spend−fast−to−grow−fast theory of doing business online crashes dramatically.
The number and scale of dotcom failures since early 2000 has caught the attention of the media and
financial markets. Greenspan's "irrational exuberance" fits the dotcom segment and some blame the
slump of the technology shares on these failures.
It is important to remember that ecommerce didn't fail, dotcom share prices fell. The causes of the
dotcom failures include:
• Too much capital too soon: Venture capital came before companies had proven they were
ready for it.
• Burn rate: Simply put, some dotcom's threw away their money on parties, options,
technology, and over−paid staff.
• Arrogance: If we build it, they will come. They didn't.
• No P2P: No clear path to profitability. The companies may have reach point B or C but they
didn't know how to get to point Z.
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• Wrong niche: Lack of online demand for the services of companies like: Petstore.com,
Pets.com, Furniture.com, MotherNature.com, and Streamline.com.
Dennis Faust, a dot−bomb veteran, says:
Each time, it's a nice little company, nice people, modestly successful. Then you
bring in the VC money −− it's like putting jet engines on a VW. They expect that,
within a year or a year and a half, they will get back 10 times their money. If it looks
like that's not going to happen, they will cut their losses. It runs up against the laws of
physics. It's like putting nine women together and trying to make a baby in one
month.
Upside: Cash and Burn, February 2001
Consolidation and Dominance
The flip−side of dotcom failures is the increasing importance of the dominant survivors in the Net
marketplace.
• Web Directory: Yahoo
Yahoo's only competition of note is the Open Directory project run by volunteers. Project
data is open source −− it can be used by anyone including Yahoo's competitors like Google to
create Yahoo−style directories. An interesting new competitor of sorts is the WikiPedia.
• Search Engine: Google
A relative newcomer, Google has moved quickly to increase both its market−share and its
content dominance. It has developed an array of popular tools and recently acquired
Blogger−−a popular web application.
• Online Super Store: Amazon
If it survives and manages to earn even a small profit, Amazon may emerge as the dominant
consumer−oriented ecommerce site.
• Internet Provider: AOL/Time−Warner
AOL was the best performing dotcom mainly because of its acquisition of slower growing but
more predictable Time−Warner. Perhaps it should be Internet Provider/Content Provider
since this company is the lead player in several industries: dial−up access, cable access, and
digital content. Cable access appears to be the most profitable business line.
• Internet Industry Content Provider: Internet.com serves Net professionals. It grew by
acquiring more than 150 Internet properties and melding them into a single source of reliable
and up−to−date information.
Webmergers Inc. tracks Internet mergers & acquisitions and they've been very busy since the dot.com
bust of early 2000. Signs of massive consolidation that they report include:
• At least 4,854 Internet companies have either been acquired or have shut down in the three
years since the dot com investment boom peaked in Q1 of 2000.
• Since then, buyers have spent $200 billion to acquire 3,892 Internet properties
• During the same three−year period, at least 962 substantial Internet companies have shut
down or declared bankruptcy
• Internet sites (destinations) dominated the early years of the Internet's rationalization
• Infrastructure properties have claimed much of the spotlight in recent years as acquirers
invested in the building blocks for the next−generation Web
• We believe that 36 months of often−painful adjustment have prepared the sector for the next
wave of growth along a rapid but more traditional path
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Source: Internet Companies Three Years After the Height of the Bubble
Future Possibilities
The future of electronic commerce appears assured. Important developments are likely to include:
Secure Transactions
For electronic commerce to succeed both buyers and sellers have to trust the system of exchange.
There are five essential elements to ensure secure transactions over the Internet:
authenticity, integrity, confidentiality, nonrepudiability of origin and nonrepudiabliity
of receipt.
Source: E−Comm draws states to information highway,
The Dallas Morning News (July 1998)
Although this sounds highly technical, much of the necessary work has already been accomplished. A
number of standards governing secure transactions have been established, and technology is rapidly
being developed to support them. The process of learning to trust this new form of commerce is
starting to make a difference, as people become more comfortable with the new ways of doing
business.
Application Service Providers
The Internet has made possible a new generation of software vendors who provide a variety of
business services via the Internet. Application service providers permit others to use their software
online for a fee or in exchange for advertising. The simplest ASP are online photo albums,
calculators, or free mail services.
However, these relatively low level services targeting consumers are being eclipsed by an array of
business services from human resources to accounting. Companies are finding that even something
like order processing and fulfillment can be done cheaper and better by a specialist firm. Outsourcing
dominates the short−term future of the Internet as both large and small companies realize the
substantial benefits of using ASPs to perform vital business functions. ASPs aren't necessarily cheap
but they do save money. Some require deep pockets but more firms, like NetLedger, are beginning to
target smaller firms.
Although written for eNonprofits, Compass Point's The eNonprofit: A Guide to ASPs, Internet
Services, and Online Software is a useful directory of currently available ASPs.
Although many ASPs are intended to be used on your website, some are available even when you
don't have a website. Some ASPs offer payroll, accounting and human−resources applications. Think
"rentable software" and consider the pros and cons before signing up for these services.
Virtual Private Networks (VPNs) offer all the advantages of a LAN or Intranet without the headaches.
That's not necessarily a bad thing. In the past, B2B commerce was solely the preserve
of Fortune 500 companies, because it required expensive leased lines and proprietary
EDI systems. But with the flowering of the Internet (and VPN technology along with
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it), small− and medium−sized businesses can join in and even compete with the big
boys. With a VPN (which is built around encryption and authentication technology),
you can establish a secure, private link over the public Internet, where you can share
vital business information, host applications, trade files, and, in the case of the auto
industry, create a massive buying network that connects partners and suppliers.
Source: VPNs for B2B?
Like APSs VPNs can be outsourced on the Internet relatively cheaply.
For cost conscious companies that do not need all of the features of a VPN www.intranets.com offers
a free intranet service including: group calendar, shared documents, contact lists, announcements, and
more. It is a password−protected web community where you limit access to trusted employees,
customers, and suppliers.
Government Involvement
By supporting e−commerce initiatives and requiring its agencies to use new technology, the federal
government is actively attempting to influence the shape of commerce in the next century.
"The federal government is almost 20 percent of the U.S. economy," Gary Bachula,
undersecretary of commerce for technology, told a CommerceNet audience gathered
here. "With the states and local government, it represents almost one−third."
Source: CNET News.com, Uncle Sam, online shopper
Government agencies can encourage the use of online ordering and payment systems for procurement.
It can mandate that taxes be collected and that benefits distributed electronically.
Another way that government can support electronic commerce is by clearing up the tangle of federal
and state laws and regulations that inhibit the use of new technology like digital signatures.
The Internet is not a priority for the Bush administration like education, defense, or a tax cut, but it
will support to support B2B electronic commerce on a number of important issues.
♦ Extend the Internet Tax Moratorium: Bush will support passage of an
extension to the Internet tax moratorium for up to five years.
♦ Pursue Free Trade: Bush will seek to restore Presidential trade negotiating
authority. In addition, he will strive to make the Internet a duty and
tariff−free zone worldwide, fight to tear down non− tariff barriers to trade in
information technology, step up efforts to combat piracy of American ideas
and intellectual property, and promote the development of internationally
compatible e−commerce standards.
Source: Ecomworld. com: "The Bush Administration's Plans for E−Commerce"
In addition the Bush administration is likely to increase funding for technology as part of its education
initiative.
Recommended sites: U.S. Department of Commerce, Economics and Statistics Administration
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Converging Technologies
The rapid integration and merging of computers, video, audio, graphics and data is behind the latest
buzzwords: converging technology. Digitizing all of these bits of information and serving them via
high−speed broadband networks is revolutionizing the information world. DVD is perhaps the purest
example of converging technology since it can be displayed on both computer monitors and television
sets. Wearable computers are no longer the subject of jokes.
The boundaries are blurring between different types of companies involved in the new media.
America Online buys Time−Warner and acquires high−speed cable access via RoadRunner and huge
text, video, and musical content archives. What's next? Will Microsoft buy the Smithsonian?
The new media is richer in depth than the old media but harder to get a handle on. One of the
innovations on the Web is the shopping agent or shopbots. Amazon's Zbubbles, Excite's
Productfinder, and MySimon enable consumers to compare prices for thousands of products and
hundreds of merchants. We may need infobots to sort through Web content in a similar way−−making
it easier to decide what to view and what to skip.
A Digital Lifestyle
When ATM cards first appeared, consumers were a bit reluctant to use them. Convenience and ease of
use led to rapid widespread adoption. Initially, many banks thought that ATMs could be profit centers
or at least save money, but it didn't work out that way. ATMs were just one of the costs of doing
business, so banks started to pass some of those costs along to their customers.
In many ways the development of Internet−based electronic commerce is likely to parallel the rapid
and widespread use of ATMs. E−commerce means convenience and security for buyers, but may just
be another cost of doing business for retailers, like accepting credit cards.
In the future, an integrated communication system, composed of what are currently separate and
unconnected services, is likely to radically change the way we live as individuals and communities.
Just as the introduction of the automobile reshaped commerce and civic life in the 20th century, so too
will this powerful yet simple and affordable communication system influence life in the next century.
Internet/Wireless applications will be increasingly common as will other Internet enhanced hardware
and software applications. The Internet/wireless appliance will be able to support voice
communications, email, Web browsing, and secure financial transactions.
Other products will get smarter too. Consider the smart refrigerator that keeps track of the supply of
milk and dairy products and orders them from an online grocer as needed. The products are delivered
to smart mailboxes that are larger and more secure than the ones currently in use−−they even have hot
or cold storage areas.
The Impact on Your Business
Revolution or Evolution
The Internet caused a paradigm shift so severe that even Bill Gates missed its significance at first. The
folks at Microsoft thought that the Net was just a plaything for academics, college kids, and
military−industrial establishment spooks. Now they are betting the future of their company and their
stock options on this worldwide communications phenomenon.
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There is nothing evolutionary about the Internet. It is not the natural outgrowth of the telegraph or
telephone or even television, although it shares some common characteristics. The Industrial Age is
dead, and it has been replaced by the Communications Age. Note: It's not the Computer Age even
though it is powered by computer technology.
And the Communications Age, like the Industrial Age, entails a revolution in how the folks earn a
living and exchange goods and services. It disrupts and re−shapes markets and the very lives of those
fortunate to be able to live through it.
When we talk about the new economy, we're talking about a world in which people
work with their brains instead of their hands. A world in which communications
technology creates global competition − not just for running shoes and laptop
computers, but also for bank loans and other services that can't be packed into a crate
and shipped. A world in which innovation is more important than mass production. A
world in which investment buys new concepts or the means to create them, rather
than new machines. A world in which rapid change is a constant. A world at least as
different from what came before it as the industrial age was from its agricultural
predecessor. A world so different its emergence can only be described as a
revolution.
Source:Wired, Encyclopedia of the New Economy
Or as one former president put it: "It's the economy, stupid!"
Recommended reading: Encyclopedia of the New Economy fromWired
The Impact of Electronic Commerce on Rural Areas
Communications technology is inherently space−adjusting technology. Distance is no longer a
deciding factor because communication shrinks distance. Not only distance but also time is affected;
so that contacting folks in Alexandria, Egypt is as easy and fast as contacting folks in Alexandria,
Minnesota.
Rural businesses can engage in worldwide commerce cheaply and effectively−−particularly if they
have a niche product. They can't compete with CUC or Wal−Mart on the number of items they sell,
but they can make the experience more satisfying and personal. Companies in rural Minnesota can
even capitalize on the vision that folks at a distance have of the state, particularly, the image of a
pristine border lakes region.
Wallys W. Conhaim notes:
Electronic commerce is emerging as an important tool for rural economic
development as small, specialized firms are able to find international customers they
would not have found through direct mail or otherwise.
Source:LinkUp, " E−Commerce "
Organizations that serve rural businesses, from the local Chamber to the Extension agent, from the
regional economic development office to the public library, need to be prepared to render assistance
and advice. Local Internet Service Providers (ISPs) need to understand e−commerce and offer
technical assistance or referrals.
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Recommended reading :LinkUp, "E−Commerce" by Wallys W. Conhaim. Part One and Part Two.
The Impact on Your Business
The rise of electronic commerce is going to affect the way you do business and how profitable your
business will be in the future. To prepare for these changes you need to:
• Be prepared to radically change the way you do business: from paper−handling to banking
• Know that electronic commerce can cost a little or a whole lot
• Recognize that online revenues do not always mean online profits
• Be patient−−it takes time to establish and market an online presence
• Understand that your customers, employees, and suppliers will need to adopt new methods of
doing business together
• Monitor the progress of electronic commerce technological development and government
regulation
• Keep in mind that electronic commerce is more about e−business than e−tailing
Summary
Basically, electronic commerce is about only two things:
• Making money online
• Saving money online
Some companies may be able to profitably sell products and services online,
but all companies can save money by using the Internet for business research
and services.
Small companies don't have to spend a fortune to use email or build a company website; big
businesses do. Wal−Mart's website produces more sales than any single Wal−Mart store, and the
company saves quite a bit of money in the process. Wal−Mart also has to spend a lot of money to
make the site accessible to heavy visitor traffic and to maintain and update the website catalog.
Small businesses may even have an edge on the Net if they can effectively exploit niche markets or
develop a reputation for superior service.
The Small Business Niche
While small businesses may not be as visible as large ones on the Internet, they need the Net,
especially the World Wide Web, to make their businesses grow. Small businesses may be able to tap
worldwide niche markets for their products.
An interesting example is the case of the Indiana kerosene dealer.
Although heaters and kerosene don't seem like products that would be
a big hit on the Internet, Manning Service Inc. found a niche and
exploited it effectively.
Since its automobile business was declining, Mannings began to sell
kerosene and kerosene heaters. Over a 20 year period it built its
business by expanding and acquiring related businesses. It is now one
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of the largest wholesale and retail sellers of kerosene heaters in the
U.S.
Manning noticed that no one was selling heaters and kerosene on the Internet. So he
created his own Web site; the address is www.msiwix.com.
What started as a 1−page site has expanded to more than 26 pages with a catalog of
kerosene heaters and answers to frequently asked questions about heaters and
maintenance.
Source: The Star Press, Randolph County kerosene dealer sells around the world
While the Manning website won't win any prizes for design, it is quite effective.
• It's easy to read and navigate.
• The product catalog is informative and well illustrated.
• The order process is quite simple; customers just call a toll−free number.
• It relies on email to deal with replacement part inquiries.
• The site is content−rich with lots of free tips.
• It's been effectively promoted: look for "kerosene" on most Net search engines and you will
find Mannings.
The website has helped Mannings expand its network of distributors. The company has sold kerosene
heaters to customers in the U.S., Canada, Europe, Japan, and even New Caledonia. Quite an
accomplishment for what was once a small town service station!
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