UNIT 1

1. Introduction to Commerce
• Commerce is basically an economic activity involving trading or the buying and selling of
goods.
For e.g. a customer enters a book shop, examines the books, select a book and pays for it. To
fulfill the customer requirement, the book shop needs to carry out other commercial
transactions and business functions such as managing the supply chain, providing logistic
support, handling payments etc.
As we enter the electronic age, an obvious question is whether these commercial transactions
and business functions can be carried out electronically.
In general, this means that no paperwork is involved, nor is any physical contact necessary.
This often referred to as electronic commerce (e-commerce).
The earliest example of e-commerce is electronic funds transfer. This allows financial
institutions to transfer funds between one another in a secure and efficient manner.
Later, electronic data interchange (EDI) was introduced to facilitate inter-business
transactions.
1.1 E-Commerce
• E-commerce involves the use of internet, web and mobile apps and browsers running on
the mobile devices to transact business.
• “E-Commerce or Electronic Commerce, a subset of E-Business, is the purchasing, selling
and exchanging of goods and services over computer networks (such as Internet) through
which transactions are performed”.
• “E-Commerce can be defined as a modern business methodology that addresses the needs
of organizations, merchants and consumers to cut costs while improving the quality of
goods and services and increasing the speed of service delivery by using Internet”.
• E-Commerce takes place between companies, between companies and their customers, or
between companies and public administration.

FEW EXAMPLES OF E-Commerce are:

• Amazon.com, an online bookstore started in 1995 grew its revenue to more than 600$
million in 1998.
• Microsoft Expedia, an integrated online travel transaction site helps to choose a flight, buy
an airline ticket, book a hotel, rent a car etc. in only a few minutes.
1.2 E-Commerce vs Traditional Commerce
• E- Commerce is about the sale and purchase of goods or services by electronic means,
particularly over the internet. In a pure e-commerce system, transactions take place via
electronic means. In this case, you will access a cyber bookstore and download a digital
book from a server computer.
• In a physical or traditional commerce system, transactions take place via contact between
humans usually in a physical outlet such as a bookstore.
• For e.g. if you want to buy a book, you will go to a physical bookstore and buy the physical
book from a salesman.
• E-Commerce is more suitable for standard goods, intangible goods; whereas traditional
commerce is more suitable for non standard goods, perishable goods, and expensive goods.
• Complex products such as cars are better served by integrating e-commerce and physical
commerce.
E-business

• E-Business is the conduct of business on the Internet, not only buying and selling
but also servicing customers and collaborating with business partners”.
• E-Business means connecting critical business systems directly to customers,
vendors and suppliers- via the Internet, Extranet and Intranets.
• Therefore it means using electronic information to boost performance and create
value by forming new relationships between and among businesses and customers.
• One of the first to use the term was IBM, in October 1997, when it launched a
campaign built around e-business.
Advantages of E-Commerce to Customers
• Reduced Prices:- Costs of products are reduced since the stages along the value
chain are decreased. For instance, intermediaries can be eliminated by the company
directly selling to the customers instead of distributing through a retail store.
 • 24-Hour Access:- Online businesses never sleep as opposed to brick and mortar
businesses. E-Commerce allows people to carry out businesses without the barriers
of time.
• Global Marketplace:- Consumers can stop anywhere in the world. Currently
according to World Trade Organization (WTO) there are no custom duties put on
products bought and traded globally electronically. This also provides wide
selection of products and services to consumers.
• More Choices:- Provides consumers with more choices. For e.g. before making
any purchase, customer can study about all the major brands and features of any
item. It also provides consumers with less expensive products and services by
allowing them to shop in many places.

Advantages of E-Commerce to Businesses

• Increased potential market share:- The internet enables businesses to have access
to international markets thereby increasing their market share. Companies can also
achieve greater economies of scale.
• Low cost Advertising:- Advertising on the internet costs less than advertising on
print or television depending on the extent of advertisement.Advertising on the
internet itself is less costly since there is less cost associated with it in terms of
printing and limited television spots.
• Low barriers to Entries:- Anyone can start up a company on the internet. Start-up
costs are a lot lower for companies since there is less need for money for capital.
• Strategic Benefits:- The Strategic benefits of making a business e-commerce
enabled is that it helps reduce the delivery time, labour cost and the cost incurred in
document preparation, data entry, error detection etc.
Disadvantages of E-Commerce
• Hidden Costs:- Although buying online is convenient, the cost of this convenience
is not always clear at the front end. For e.g. on-line purchases are often accompanied
by high shipping and re-stocking fees, a lack of warranty coverage and unacceptable
delivery times. In fact, too many e-commerce companies have developed a
reputation of overcharging for shipping and handling.
• Lack of Security:- One of the main roadblocks to the wide acceptance of e-
commerce by businesses and consumers alike is the perceived lack of adequate
security for on-line transactions.
For e.g. Consumers are growing increasingly worried about providing credit card
information over the Internet.
During the past few years, the press has been filled with reports about hackers
breaking into e-business and stealing credit card information.
• Lack of Privacy:- Customers also worry about the privacy implications of data
gathered by organizations of all types and sizes. Even at the simplest data level,
sales information is stored in databases connected to web servers, thus exposing the
information to cyber criminals. Because data gathering on the web is so easy,
databases routinely contain information about customer purchasing habits, credit
information and so on. In many cases, companies sell customer database
information to marketing companies. In turn, the marketing companies engage in
massive e-mail campaigns to attract new customers. It doesn’t take long for the
customer’s email box to be filled with unwanted email (also known as Spam).
• Network Unreliability:- Although the Internet is designed to overcome the single
point of failure problem, there have been several well-publicized incidents of
network failures during the past few years. Network reliability problems may be
generated by such factors as:-
➢ Equipment failure in the network connection provider.
➢ Accidental problems caused by nature-such as lightning, floods,
earthquakes that affect communication lines.
➢ Long response time due to increased network traffic or inadequate
bandwidth.
 • Low Service Levels:- Another common complaint about doing business online is
the low level of customer service that online companies tend to provide. Although
technology has automated business transactions to a large extent, there remains a
real need for the human touch. Therefore e-commerce websites must provide:-
➢ A pleasant and problem free pre-ordering and ordering experience. The
website design is an important interface.
➢ Readily available easily used feedback options.
➢ Quick complaint resolution.
➢ Timely and low-cost shipping delivery to customers.
1.3History of E-Commerce
Early Development:
• The history of E-commerce begins with the invention of the telephone at the end of
last century.
• EDI (Electronic Data Interchange) is widely viewed as the beginning of ecommerce.
Large organizations have been investing in development of EDI since sixties. It has
not gained reasonable acceptance until eighties. The meaning of electronic commerce
has changed over the last 30 years.
• Originally, electronic commerce meant the facilitation of commercial transactions
electronically, using technology such as Electronic Data Interchange (EDI) and
Electronic Funds Transfer (EFT).
• These were both introduced in the late 1970s, allowing businesses to send commercial
documents like purchase orders or invoices electronically.
• The growth and acceptance of credit cards, automated teller machines (ATM) and
telephone banking in the 1980s were also forms of electronic commerce.
• Another form of E-commerce was the airline and railway reservation system.
• Online shopping, an important component of electronic commerce was invented by
Michael Aldrich in the UK in 1979. The world’s first recorded business to business
was Thomson Holidays in 1981. The first recorded Business to consumer was
Gateshead SIS/Tesco in 1984. During the 1980s, online shopping was also used
extensively in the UK by auto manufacturers such as Ford, General Motors and Nissan.
The systems used the switched public telephone network in dial-up and leased line
modes.
• From the 1990s onwards, electronic commerce would additionally include enterprise
resource planning systems (ERP), data mining and data warehousing. An early online
information marketplace, including online consulting, was the American Information
Exchange, another pre-Internet online system introduced-in 1991. In 1990 Tim
Berners-Lee invented the World Wide Web and transformed an academic
telecommunication network into a worldwide everyman everyday communication
system called internet/www(dot)Commercial enterprise on the Internet was strictly
prohibited until 1991.
•
• Although the Internet became popular worldwide around 1994 when the first internet
online shopping started, it took about five years to introduce security protocols and
DSL allowing continual connection to the Internet. By the end of 2000, many European
and American business companies offered their services through the World Wide Web.
Since then people began to associate a word “E-commerce” with the ability of
purchasing various goods through the Internet using secure protocols and electronic
payment services.
• The Internet and the Web:
• The Internet was conceived in 1969, when the Advanced Research Projects Agency (a
Department of Defense organization) funded research of computer networking. The
Internet could end up like EDI without the emergence of the World Wide Web in
1990s. The Web became a popular mainstream medium (perceived as the fourth
mainstream medium in addition to print, radio and TV) in a speed which had never
been seen before. The Web users and content were almost doubled every a couple of
months in 1995 and 1996.
• The Internet is a global network of networks while the Web, also referred to formally
as World Wide Web (www) is a collection of information that is accessed
via the Internet. Another way to look at this difference is; the Internet is infrastructure
while the Web is served on top of that infrastructure..
• For example, the numbers of consumer brand retail sites like Amazon(dot)com and
Flipkart(dot)com which normally provides information about products and also allows
monetary transactions to happen over the internet.
• On the contrary there are the auctions sites like Quickr(dot)com and Ebay(dot)com
where the information about certain listed products and services are provided but the
monetary transactions normally happen physically.
• Apart from these two categories of e-commerce sites, there are some sites which enable
businesses to exchange trading goods and also service between two or more companies.
All of these forms of internet based business platforms are known as e-commerce.
• Over the last decade the advent of e-commerce has actually transformed the manner in
which people used internet. People now are not only just using internet for gathering
information, leisure or socializing online but also at the same time they are seeking
measures to conduct business.
• Even popular social networking sites like Facebook(dot)com are allowing people to
promote and sell products and services online and the introduction of computer and
mobile based e-commerce application software like Shopify provides evidence of how
e-commerce have boomed over the past 5 years.

1.2 Difference between E-Commerce and E-Business

E-Commerce E-Business
E-Commerce is the practice of conducting E-Business is the term for doing all types of
business operations and transactions through commercial transactions through the internet
the internet
It required the use of the internet. It required the use of the internet, intranet,
and extranet
It includes limited transactions It includes unlimited transactions.
Outward/external business processes are E-Business encompasses both internal and
covered by E-Commerce. external business processes and activities
E-Commerce refers to transactions involving E-Business refers to both monetary and non-
money monetary operations
It refers to buying, selling, and online It refers to the online presence of the
transactions business.
1.3 Types of e-Commerce
• Business-to-consumer (B2C)
• Business-to-business (B2B)
• Business-to-government (B2G)
• Consumer-to-consumer (C2C)
• Consumer-to-business (C2B)
• Consumer-to-government (C2G)

1. Business-to-consumer (B2C)

The B2C ecommerce business model involves a business selling products directly to
consumers.

B2C businesses can sell their own products—a practice known as direct-to-consumer (D2C)—
or they can sell products from other brands.

The goods or services are generally for personal use, ranging from groceries, clothing and t-
shirt businesses, electronics to streaming services.

Walmart, BestBuy, Amazon, and Alibaba are classic examples of B2C businesses. They resell
other companies’ products via ecommerce websites.

H&M, Adidas, and HelloFresh are businesses using the B2C ecommerce model that also use
the D2C model. They sell their own products to consumers.
2. Business to Business (B2B)
B2B businesses sell products or services to other businesses.

B2B companies can sell directly to end users. Or they can sell to businesses that then resell the
products to other companies or consumers.

Typically, the goods and services are for business use only, such as to support productivity,
collaboration, office needs, or the production process. In many cases, the buyer may also
purchase the item in bulk for reselling purposes.

In recent years, eCommerce has accelerated the growth of the B2B industry. The reason is that
many companies are switching to online means to conduct business with their consumers and
partners.

B2B marketplaces such as Alibaba and Amazon have contributed to the rise as well. Many
eCommerce businesses also have their own websites and applications to facilitate transactions.

For example: Project collaboration tool Trello is a B2B ecommerce company that sells to end-
user businesses.
3. Business-to-Government (B2G)

In a B2G ecommerce model, businesses market and sell products to government organizations
or public administrations. These include federal, state, county, and local organizations.

This type of eCommerce business sells online tools to government agencies. Usually, the entity
will use the program to manage its services, such as processing citizens’ requests or
maintaining official records.

For example: OpenGov sells software to local government agencies.

Many B2G transactions start with a request for proposal (RFP). This is where a government
agency invites businesses to pitch their product or service to them in order to bid for a contract.

4. Consumer to Consumer (C2C)

C2C describes business transactions involving two or more consumers. The term can also refer
to any provider that manages this type of online transaction.

With the C2C type of eCommerce, a business provides an online platform for consumers to
buy and sell from each other.

These platforms may be marketplaces where people can list their items and get paid on the
website. It may also be a forum for people to market their goods or services, but the transaction
happens in person.

The business will earn income by charging fees to list items on the site. Some may also
implement transaction rates, which typically apply every time a seller makes a successful sale.

When done correctly, this eCommerce business model can be highly profitable. Many people
prefer selling on third-party websites, especially if they attract a large user base, such as eBay
or Craigslist.

For example: When a person sells their car to another person, that’s a C2C transaction.

C2C ecommerce platforms (online marketplaces) include Facebook Marketplace, eBay,

Craigslist, and Vinted.

They provide listing services, quality control, payment processing, and dispute resolution to
keep money and products flowing between consumers. Typically, they earn fees or commission
in return. Or they generate ad revenue from consumer traffic to their site.
5. Consumer-to-Business (C2B)

C2B ecommerce involves consumers selling goods and services to companies.

In C2B eCommerce, individuals offer their talents and skills to businesses. Popular examples
of goods or services in this model include freelancing, affiliate marketing, and user testing.

Sometimes the company will be the end-user. For example: An individual selling an image to
a newspaper is conducting a C2B transaction. Because the newspaper publishes the image, they
are also the product’s end user.

Sometimes, the company purchasing the consumer’s goods will resell them.

Shutterstock. The image library buys content from contributors (consumers) to sell to other
users (often businesses).

6. Consumer to Government(C2G)
C2G describes transactions between consumers and government agencies. A C2G ecommerce
business is any company that facilitates these transactions.

The C2A model refers to eCommerce activities between individuals and the government.
These transactions are typically payments for public administration costs, such as health
services, social security, or taxes.

For example, utility companies give home and business owners direct access to government-
sponsored energy services. Like Dominion Energy. The company ensures reliable power and
gas delivery and allows customers to

manage their services.

1.4 Uniques Features of Ecommerce

1. Ubiquity :
There is a physical space in the traditional business market. Where for example, the customer
has to go to buy Clothes, Shoes etc. Whereas in E-commerce this is not the case.
E-commerce is widespread, that is, it is available everywhere always. It sets free market from
being restricted to a physical space and makes it possible to shop from computer (such as
desktop, laptop). The result is called a market space.
For consumers, ubiquity cuts transaction costs for exploring products in a market. Consumers
can acquire any information whenever and wherever they want, regardless of their location. It
is no longer necessary that buyer spend time and money for traveling to a market. In all, it saves
the cognitive energy needed to transect in a market space.

2. Global Reach :
E-commerce technologies enable a business to easily reach across geographic boundaries
around the earth far more conveniently and effectively as compared to traditional commerce.
Globally, companies are acquiring greater profits and business results by expanding their
business with e-commerce solutions. As a result, the potential market size for e-commerce
merchants is approximately equal to size of online population.

3. Universal Standards :
Universal Standards are standards shared by all the nations around world. These are technical
standards of Internet for conducting e-commerce. It gives all the ability to connect at the same
"level" and it provides network externalities that will benefit everyone. Universal technical
standards lower entry costs and minimal search costs.
E-commerce technology is an unusual feature, is the technical standard of the Internet, so to
carry out the technical standard of E-commerce is shared by all countries around the world
standard.
4. Richness
E-commerce is also as rich as Television Technology. Advertising and branding is an important
part of commerce. E-commerce can Deliver Video, Audio, Animation, Billboards and Signs
etc.
 5. Interactivity :
E-commerce technologies permits two-way communication between customer and sellers
which makes it interactive. It proves as significant feature of e-commerce technology over the
commercial traditional technologies of the 20th century.
6. Information Density
Information density means total amount and quality of information available over Internet to
all market buyers and sellers. Internet vastly increases information density.
Information on the Internet today is immense compared to before. Quality information is
available about all markets, consumers, businesses etc. And it has improved a lot.

Electronic commerce technology reduces the cost of information collection, storage,

communication and processing. And at the same time, it enhances the timeline and accuracy of
information technology. Information is very important.
7. Personalization
E-commerce Technology can also be personalized. The business can be adjusted to have a
name, a person’s interest, a past purchase message object, and a marketing message to a person,
etc. The technology also allows for custom. Merchant can also change the product or service
based on user preferences and past behavior.
1.6 Key Elements of E-Commerce Business Model
To develop a successful business model, we must address the following 8 key ingredients:
1. Value Proposition
2. Revenue Model
3. Market Opportunity
4. Competitive Environment
5. Competitive Advantage
6. Market Strategy
7. Organizational Development
8. Management Team

1. Value Proposition
Defines a firm’s product or service fulfils the needs of customers.
Should answer the following questions:
▪ Why all customers buy our product instead from our competitors?
▪ What will we provide that others will not?
E-Commerce can offer:
▪ Personalization and customization
▪ Reduction in product search cost
▪ Reduction in price discovery cost
▪ Facilitation of transaction by managing product delivery.
2. Revenue Model
Describes how the firm will earn revenue , product profits and produce superior
return on invested capital.
Examples of e-commerce revenue models:
▪ Advertising model
▪ Subscription model
▪ Transaction Model
▪ Sales model
▪ Affiliate model
3. Market opportunity
 Refers to the firm’s intended marketspace and the overall potential financial
opportunities available to the firm in the marketspace
Usually divided into smaller market segment and within each market segment
there are market niche.
Example: Motor Industry:
▪ MarketSegment: Commercial vehicles and consumer vehicles
▪ Market niche for consumer vehicles : luxury cars, MPV
4. Competitive Environment
Refers to other firm’s operating in the same marketspace selling similar
products.
Factors influencing the environment:
▪ How many competitors are active?
▪ How large their operations are?
▪ What the market share of each competitor?
▪ How profitable these firms are?
▪ How they price their products?
▪ Direct Competition: Firms that sell products and services that are very similar and
into the same market segment.
▪ Indirect Competition: Firms that may be different industries but still compete
indirectly.
The existence of large number of competitors in any one segment:
o May be a sign that the market is saturated.
o It may be difficult to be profitable.
5. Competitive Advantage
Achieved by a firm when it can produce a superior product and /or bring the
product to market at a lower price than most , or all of its competitors.
Achieved competitive advantage from
▪ Obtain different access to factors of production denied to
competitors.
▪ Has more experience , knowledge other cannot imitate.
▪ Has patent on products competitors cannot imitate.
▪ Loyal customers that competitors donot have.
▪ Brand name and popular image other cannot imitate.
6. Market Strategy
The plan put together that details exactly how a firm intends to enter a new
market and attract new customers.
Example:
▪ Smart Partnerships with other firms to joint promote products.
▪ Distribute free sample, free gifts.
▪ Advertise heavily.
7. Organizational Development
Describes how the company will organize the work that needs to be
accomplished.
Organizations need changes to organizational structures and cultural values to
support e-commerce.
▪ Work rules, procedures
▪ Reporting Structure
▪ Information flow between departments
8. Management Team
Employees of the company responsible for making the business model work.
The skill and knowledge of management can make or break the business model.
Finding the right management team:
▪ What kinds of experience and skill sets requires for the business
model: Technical skills and experience in given field
1.7 Types of Revenue Models
A revenue model is a plan for earning revenue from a business or project. It explains different
mechanisms of revenue generation and its sources. Since selling software products is an online
business, a plan for making money from it is also called an eCommerce revenue model.

1. Sales-based revenue Model

• The sales revenue model is another eCommerce business model where wholesalers
and retailers sell their products over the internet.
• This type of revenue works by reaching out to a wider range of target audiences
connected to the internet.
• Businesses in these markets come with marketplaces as common entry points for
dealing with various goods.
• Online retailers can sell their products on the market places at prices that are often
considered competitive against what you would find in-store or on competitor
websites.
2. Transaction-based revenue model
• For any kind of buying and selling that takes place on an online platform, there has to
be a payment method set up for completing transactions.
• The setup is done by companies providing a secure platform for various payment
modes.
• Companies like Paypal, Transferwise, etc., charge sellers for every transaction carried
out through their payment gateways.
• Companies providing a transactional platform charge sellers based on the pre-
negotiated percentage between them and the online platforms.
• Furthermore, payment gateways are configured with high-security protocols to
maintain private and critical consumer data integrity.
•

3. Advertisement-based revenue model

• The advertisement-based revenue model is a plan with which businesses make

money by selling ad spaces.
• It is one of the most standard methods of producing top-line growth, and it’s valid both
for online and offline businesses.
• It’s often used by websites/applications/ marketplaces or any other web resource that
attracts huge amounts of traffic.
• As a smaller business, it can be tough to get the traffic that a business such as YouTube,
Facebook or Google gets daily. However, placing an online advertisement on
Facebook, YouTube or Google can help get the small business more traffic.
o These high-traffic platforms charge a commission to the company that places
advertisements on the platform.

• Businesses that post advertisements use a few different methods when charging for
online advertising:
o One set fee: Paid by the advertiser to have the advertisement on the business's
website
o Pay-per-click: The advertiser pays the business each time the business website
is accessed
o Pay-per-view: The advertiser pays the business each time the advertisement is
clicked
• The method of generating revenue through advertisements is not new. Advertisements
have appeared on television, in magazines, and on billboards, and now have been
expanded to include internet advertising.

4. Affiliate Model
• Affiliate marketing is an ever-growing revenue model that allows a business to partner
with an e-commerce platform.
• A business will place its business link on an e-commerce platform. When the customer
engages and clicks the link, the customer is taken to the business's website and the e-
commerce platform receives a commission
• The affiliate model do not sell the product or service on their own platform, but rather
redirect the customer to the original provider's platform to make the purchase and earn
a commission on any resulting sales.
• An affiliate model is a contract between a supplier of a product/service and a promoter.
A promoter can be another business/media resource/blogger that recommends a
supplier’s product.
• The earnings will come as a percentage of sales or fees for the number of registrations
done via referral links.
• Amazon is an example of an e-commerce platform that allows businesses to advertise
their product and if a customer clicks the link, the business then gives a commission to
Amazon. Pay-to-click is the common term to use for this method of affiliated
marketing.

5. Subscripton-Based Revenue Model

• The subscription revenue model is a great way to generate steady, monthly income.
• By charging customers for access and processing payments at regular intervals, you can
establish long-term relationships with your clients who will continue paying even if
they don't use the product or service as often.
• A fee to use a service each month helps companies generate revenue. Commonly known
subscription-based services consist of Netflix and Amazon Prime.
• There are also companies that offer subscriptions for additional benefits. For example,
LinkedIn is free to use as a professional social media platform. If a person would like
to take advantage of advanced premium features such as sending a message to someone
who is not in the person's network, the person must have a premium membership to do
so. This premium membership requires a monthly fee.
• Subscription fees may be a fee for the entire service or it could be a fee to have access
to premium features
• The advantage of subscription-based revenue is that you know exactly how many
consumers are availing of your subscription.