E-commerce

E-commerce

E-commerce (sometimes called web-based commerce) is the term used to describe the activity of doing business on the Internet. It includes business-to-business, business-to-consumer, and even consumer-to-consumer transactions that involve the buying and selling of goods and services, the transfer of funds, and even the exchange of ideas. E-commerce includes functions such as marketing, manufacturing, finance, selling, and negotiations. The phrase can also refer to downloading software, accessing games, or downloading content such as journal articles and books.

Business-to-business transactions are commonly accomplished through Electronic Data Interchange (EDI). This protocol is now used by most Fortune 1,000 companies. EDI enables large organizations to transmit information over private networks; it has also found a role on corporate web sites (intranet ).

Business-to-consumer e-commerce can provide customers with convenience and access to a wide range of goods and services, while allowing businesses to reach large or unique markets. Components of business-to-consumer e-commerce include security measures, "shopping carts," payment options, and marketing.

Security

A business web site must be secure if it is going to handle financial transactions. A standard option is SSL (Secure Sockets Layer) using public key encryption , one of the strongest encryption methods available. SSL ensures that private information—such as passwords, credit card numbers, and customer profile data—is secure and encrypted as it is transmitted. Consumers will know they are using secure sites when they see closed padlock icons on the status bars of their web browsers. Another security protocol is called SET (Secure Electronic Transactions). SET encodes the credit card numbers on a business server. Created by Visa and MasterCard, SET is very popular in the banking community.

Shopping Carts

The electronic shopping cart is a popular feature that allows consumers simply to click on a button to select one or more products for purchase. When the customer has finished shopping, the cart system allows the consumer to "check out."

Payments

Various payment options exist to facilitate business-to-consumer e-commerce. These include digital or electronic cash, electronic wallets, and micropayments.

Digital or Electronic Cash (E-cash).

With digital cash, a consumer can pay for goods or services by transmitting a number. The numbers, similar to those on a dollar bill, are issued by a bank and represent specific sums of real money. Key features of digital cash are that it is anonymous and it can be reused, just like real cash. Various forms of e-cash have been around for awhile but consumers seem to prefer to use their credit cards. Federal laws provide credit card users the right to dispute any payments charged to their cards and limit theft losses to $50.

Electronic Wallets.

These "wallets" store credit card numbers on personal computers in encrypted forms. Consumers can make purchases using their credit cards at web sites that support one of these wallets. A secure transaction is created by the electronic wallet company's server.

Micropayments.

These transactions are in amounts up to $10, usually made in order to download or gain access to games or graphics. This method of paying for online content is not as widespread as others.

Marketing

Because e-commerce allows businesses to reach a worldwide market and to compete around the globe, creative marketing and promotion of a web site is crucial to the success of an Internet-based business. This must be balanced with sound business practices, however. Although many of the dot.com businesses that were heavily marketed to consumers during the late 1990s and into the new millenium managed to acquire good name recognition, a significant number were unable to stay in business, in part because they failed to provide the level of service consumers had been led to expect.

E-Commerce vs. Traditional Commerce

The Internet has changed the nature and structure of competition. In the past, most businesses had to compete within a single industry (such as groceries) and often within a specific geographic area, but the Internet is blurring those boundaries. An example is Amazon.com. The company began as an online bookstore but quickly expanded into new products and markets such as music, videos, home improvement supplies, zShops (used music, books, etc.), and even the auction business. Through the Internet, customers can purchase products from virtually anywhere in the world.

A traditional business may have large overhead costs associated with maintaining a storefront. But a web-based business does not necessarily have that type of overhead, which may mean that continued growth becomes easier. With e-commerce, businesses can move more quickly and usually less expensively to reach a worldwide audience. For example, the cost of reaching a consumer in Minneapolis, Minnesota, is the same as reaching one in Clifton, Colorado.

An important difference between traditional business and e-commerce is the elimination of the middleman, known as disintermediation . Businesses and consumers can communicate directly to carry out transactions, which can help entrepreneurs market their products or services without the cost of salespeople or product representatives. Although e-commerce is still a developing part of the economy, some people believe that traditional stores and mail-order companies may eventually go out of business. Other observers believe that traditional and electronic commerce will find new ways to work together.

Despite some consumer wariness, due in part to reports of hackers breaking into allegedly secure web sites and downloading credit card information, businesses have found that financial transactions on the Internet can actually be more secure than in traditional retail environments. Much credit card fraud is caused by store employees who mishandle card numbers. Most consumers do not seem to realize their credit card numbers are vulnerable every time they hand their cards to waiters, place orders by phone, or toss out receipts. The encryption of card numbers for online transactions protects both the consumer and the business from credit card fraud.

Finally, the Internet is revolutionizing competition in the area of pricing. At any point, a business may choose to simply give away a service, free of charge, that others sell. One example was when Microsoft began to include a "free browser" with Windows software. Such businesses generate income through other means, such as by selling ads or products and services related to the give-away item. Such strategies can help business attract customers. In addition, when "products" do not require manufacturing and packaging, as is the case with software downloaded via the Internet by a user, the reduction in business costs can be passed on to customers.

The Influence of the Internet

Research by Jupiter Media Metrix showed that 13.4 million households banked online from July 2000 to July 2001, a 77.6 percent increase in one year alone. In late 2001 Jupiter predicted online sales would reach $104 billion in 2005.

Statistics aside, the Internet has made strong inroads into the lives of people in virtually all demographic groups. Computer businesses, telephone companies, cable retailers, Internet providers, public libraries, and even coffeehouses have made Internet access available to almost anyone. School children are taught how to access the Internet, but so are patrons of libraries, community centers, and senior citizen centers. Readily available Internet access has opened the door wide for the world of e-commerce.

The Future of E-Commerce

Many analysts believe that e-commerce will reshape the business world. Some predict that the huge growth of virtual communities—people getting together in ad hoc interest groups online—promises to shift the balance of economic power from the manufacturer to the consumer, eroding the marketing and sales advantages of large companies. A small company with a higher quality product and better customer service can use these communities to challenge larger competitors—something it might not be able to do in the traditional world of commerce.

Non-business organizations are using lessons learned in the early years of e-commerce. An example of what the future may hold is "eduCommerce," a concept combining online course offerings with advertising content. Some experts believe that universities may eventually face stiff competition from organizations that offer their courses at no charge, counting on sales generated from ads to make their profits and draw new customers. Other forms of e-commerce will surely emerge as consumers explore the vast reaches of doing business via the Internet.

see also Internet; Intranet; World Wide Web.

Melissa J. Harvey

Bibliography

May, Paul. Business of E-commerce. Cambridge: Cambridge University Press, 2000.

Shapiro, Carl, and Hal Varian. Information Rules: A Strategic Guide to the Network Economy. Boston: Harvard Business School Press, 1999.

Shaw, Michael. Handbook on Electronic Commerce. Berlin: Springer, 2000.

Standing, Craig. Internet Commerce Development. Boston: Artech House, 2000.

Internet Resources

Varian, Hal. "Commerce." School of Information Management and Systems, University of California, Berkeley. <http://www.sims.berkeley.edu/resources/infoecon/Commerce.html>

Web Commerce Today. Wilson Internet. <http://www.wilsonweb.com/wct/>