Whats

Electronic
Commerce?

A modern business
methodology ... to cut costs while
improving the quality of goods and
services and increasing the speed of
service delivery.

Frontiers of Electronic Commerce

Ravi Kalakota, and Andrew B. Whinston

Evolution of Electronic Commerce

From VANS to Internet

Electronic Commerce has, so far, meant
electronic data interchange (EDI) over Value
added Networks (VANS) used by corporate
organisations. That was computer-to-computer
exchange of routine business documents in a
standard format. Now, it has the scope to use the
Internet too as the medium. The Internet enables
customers, partners and users to access a
companys EDI network, which earlier was
closed to smaller companies, simply because of
the costs involved.

Evolution of Electronic Commerce

From VANS to Internet

While the Internet speeds up transaction times,

another advantage it has over EDI transactions
conducted over a private network is the connect
charges applicable. Traditionally, VAN
providers charge for EDI on a per-transaction
basis. Organisations that use EDI therefore tend
to send transactions in a batch to their
customers once a day. Over the Internet where
all connect charges are fixed, Organisations can
well afford to send transactions at any time they
want to, thus enabling real time commerce.

How can E-commerce be used?

Community-based services: Payment of utility

bills, traffic fines, donations to charity etc.
Shopping: Buying and selling goods and services
Communication: E-mail, Net telephony products
can be commerce-enabled and serviced via the
Net.
Biz-to-Biz applications where the purchase
orders are generated and seamlessly integrated
with EDI systems.

Electronic Trade

A recent report by the Organisation for

Economic Co-operation and Development
(OECD) predicts Internet trading will grow
from todays estimated $500 million to $5
billion by 2001. In keeping with the trend
worldwide, India has entered into over 50 tax
treaties to follow the flow of the increasingly
seamless worldwide electronic trade.
With emerging payments standards such as the
Secure Electronic Transaction (SET) protocol,
E-Commerce practises are reportedly reaching
the end of usefulness rapidly.

Trends in Electronic Commerce

Even though fewer than one in five of the

largest retailers in the U.S. sell their wares
on the Internet, consumers managed to
spend more than $10 billion shopping on the
Web in 1997. Over 10% of that was spent at
a single Website--NetMarket, an online
discount service created for its dues-paying
members by CUC International. NetMarket
handled over $1.2 billion in sales last year.

NEW CAPABILITIES THE INTERNET

BRINGS TO COMMERCE

The Internet will augment electronic commerce

already being conducted between businesses--at a
much lower cost--as well as will dramatically increase
electronic commerce conducted with consumers.
Critical issues such as how to handle electronic
payment, security, privacy, and fraud prevention are
being addressed with reliable commercial software,
and businesses are beginning to use information
technology on the Internet to exploit the advantages of
conducting business electronically. Increasingly,
business people are discovering important bottom-line
benefits on the Web, including:

NEW CAPABILITIES THE INTERNET BRINGS TO COMMERCE

Speedier, more accurate transactions

through customer self-service

The Internet can save time and money and improve accuracy
by eliminating middlemen who offer little added value. We
will eventually see complex, multiparty transactions
conducted over the Internet with no human interaction at
intermediate levels whatsoever. As a result of one click by the
end-consumer, the order will be placed, paid for, the product
depleted from inventory, the shipment arranged, replacement
components ordered from suppliers, and a replenishment
order initiated. As an example, an airline's Web site may
perform the simplest duties of a travel agent--provide access
to timetables and fares, and make single-provider
reservations--thus removing the agent as an intermediary.

NEW CAPABILITIES THE INTERNET BRINGS TO COMMERCE

Broader reach, larger potential

customer base

Retailers who embrace the Web enjoy the potential--and

challenge--of selling to an ever-growing community of wellinformed shoppers. Geographic boundaries become all but
irrelevant (although state taxes and import duty can still apply)
and operating hours are limited only by the software and
hardware behind the Web site. As has often been observed, the
Web is a great equalizer for businesses just starting up and
facing very large competitors. For example, in the case of an
on-line bookstore like www.amazon.com, the vastly larger
population of potential customers on the Web renders it
feasible for that single "store" to house a physical inventory not
otherwise practical for a startup operation, and thus offers what
previously only the "big guys" could.

NEW CAPABILITIES THE INTERNET BRINGS TO COMMERCE

Better and richer information for the business,

partners, suppliers, and consumer customers

The Web delivers text, images, voice, and video to WAN-and

LAN-connected users, organized onto hyperlinked HTML
pages. This wide range of options enable the consumer or
purchasing agent to view and interact with the business in the
most appropriate, polished, appealing, and information-rich
way. For example, a sophisticated Web server can personalize
the catalog a given inquirer sees. Better and more consistently
than any user registration card can, a Web site can capture and
analyze the buyer's behavior for future planning, dynamic
personalized marketing, and loyalty schemes. It can involve
customers, partners, and suppliers in ways previously thought to
be difficult or impossible (e.g., accept customer-furnished book
reviews, support chat and e-mail for user groups, dynamically
and automatically launch a sale based on the past 24-hours'
buying patterns, etc.). A net-connected consumer, business
customer, or supplier can train the business' Web site to keep
special interests in mind and proactively notify the buyer via email of relevant business changes.

E-Commerce and India

While some blame the high cost of

implementation, others worry about the lack
of security. The systems needed to transact
over the Net are in the early stages of
development and are still costly and
complicated for Indian Businesses to use. But
its clear that E-Commerce is in, and the
combination of the Internet and the EDI
(Electronic Data Interchange) is the next step
in building competitive advantage.

EXAMPLES OF ELECTRONIC
COMMERCE TODAY
If we consider some of the goals of businesses with
regards to electronic commerce: higher revenues
through exposure to additional customers; cost
reduction; lower product cycle times; faster customer
response; and improved service quality, we see how
dramatically a company's bottom line can be
influenced with the addition of electronic commerce.
A number of pioneering firms are implementing
electronic commerce solutions today and are finding
new ways to save and make money.

Success stories...

Lucent Technologies

Business-to-Consumer
Electronic
Lucent Technologies is using
Oracle Commerce
Universal

Server and Oracle Web Application Server to

power a high-traffic Internet commerce site for
marketing and selling its business communications
products. The site allows Lucent customers to
browse up-to-the-minute information and images
representing more than 1,000 Lucent products and
place orders securely on-line.

Success stories...

Lucent Technologies-2

Built in only six weeks, Lucent launched the site in July

1996 at www.lucentdirect.com and has been continually
upgrading the site without any performance hits. Lucent
product managers are able to easily make updates on-line,
such as price increases or product description changes, by
simply entering the system through their browser, using a
password, and making changes instantaneously to Lucent's
electronic catalog in a word-processor format. The
system's complexity is transparent to Lucent product
managers who, with the proper security checks, can
maintain their own content in a timely manner. This avoids
involving an HTML programmer who would have to make
those changes for the entire company.

Success stories...

Lucent Technologies-3

"Our customers and employees don't need to know

the technology behind the site. The consumer wants
to know that the information they are getting is
correct and they don't want to wait for it; otherwise,
they will buy somewhere else. Because our product
managers are able to maintain their own product
content on the site, updates are made quickly and
easily. That functionality helps to keep Lucent's site
successful and directly connects us with a whole
new market, saving us considerable time and
money."

Tom Catani, general manager of electronic

commerce, Lucent Technologies

Success stories...

In Focus

Business-to-Consumer Electronic Commerce

In Focus is the world-wide leader in manufacturing

and developing multimedia projection products and
services that make it easy to project the power of
multimedia in business and sales presentations,
software demos, education and training, and
interactive workgroup meetings. The company uses
Oracle Applications (Financials and Manufacturing) as
the backbone of its business and uses the Web
Customers module to allow its distribution partners
(resellers) to track the progress and status of orders. In
Focus was able to install and customize Web
Customers in only eight weeks.

Success stories...

Chrysler Corp.
Chrysler Corp., by linking to its suppliers through a
Web-based network, reportedly saved more than
$1billion in cost of materials in 1997. By 2000,
Chryslers estimated annual average savings will
amount to $2 billion
The Internet is a tempting channel for a Bank which
can conduct an online transaction for five paise
versus RS 1.50 through a teller.
The biggest challenge for companies involved in
electronic commerce isnt the technology-its
changing the corporate culture. It requires an
organisation to be bold.

Success stories...

Cisco

The Cisco Connection Web Site, now available in

14 languages and with 49 country pages, is
claimed to be the largest Internet Commerce Site.
John Chambers, President and CEO, Cisco
Systems Inc., predicts that E-Commerce will be
the primary means by which business will be
conducted in the next 10 years.
Ciscos sale through the Web has touched $ of a
total of $ billion.

Success stories...

Dell Computers
Dell

Computers made waves in

industry circles when they announced
that they sold over a billion dollars
worth of Personal Computers directly
off the Web in 1997.

Lessons learnt from the

Dell Experience

Increasing margins and revenues. Dell

understood that the web could take the
place of their customer call center replacing
sales representatives and technical support
staff. Phone and material costs decreased
while also speeding up the sales process.

Lessons learnt from the

Dell Experience

Value-added for the customer heightened

the web experience. The web also offered
new ways to help people choose computers
and price them without sending faxes of
information. Pricing and comparing
configurations became easier.

Lessons learnt from the

Dell Experience

Synergies with current business systems.

Even if the user doesnt buy over the web,
the percentage of voice calls into Dell show
that a very high percentage did their presales shopping by visiting their web site!
Customers needed to spend less time with
representatives on the phone saving even
more money.

Lessons learnt from the

Dell Experience

The perfect target market for consumer

sales. The web demographics of young
professionals who already are computer
literate and disposed to a computer (by
being on the web) was a marketing match
made in heaven.

Lessons learnt from the

Dell Experience

The perfect way emerged for business

sales. Business users can also find their way
onto Dells site and Dell is now providing
internal virtual web stores within large
corporate Intranets to aid the purchasing
process. This is a new growth segment for
Dells web-based sales.

How do you Buy On-Line?

World

Avenue, IBMs electronic

shopping mall on the Web, being beta
tested, has been used to generate 5,500
orders from 200,000 online customers,
for some $275,000 worth of caps, mugs
and other Olympics merchandise.

How do you buy Online?

As you browse through the store, that
runs an e-commerce server, such as the
HP domain commerce server or is part of
an electronic mall, such as IBMs
Net.Commerce, the server helps you
select an item (say an Olympic souvenir
mug), and place an order. Such servers
carry software to verify transactions,
perform accounting duties, guarantee
payments, and even create digital money.

How Do you pay Online?

Wishing to pay for the item, you send an enciphered

request for payment to your bank/third-party payment
provider. Your bank will then remit to you, a secure
packet of e-cash. Using Cybercashs wallet
application , you send an enciphered payment request
to Cybercashs server. Once the credit is authorised
by Cybercash over secure lines to your bank, money
in Wallet is used to complete the purchase.
(contd...)

How Do you pay Online?-2

You

then send the exact amount of e-cash

needed to buy the Olympic souvenir to
the virtual store. The server at the store
then sends that packet of cash to its bank.
The merchant bank then sends a request
for transfer of funds to your bank, which
the latter, after verification, performs.
This is where actual funds are transmitted
from your bank to the merchant bank.

Buying Books Online

All you do is to select the books you want to buy, and place an
order for them. You could then either pay for them through
your credit card, or pay for the books when you receive them.
Buying books from Amazon.com is thus much like buying
items from a catalogue. Whats more you can view the book,
and maybe read part or whole of it.
This Online Bookstore has become so popular, that not only is
it the number one bookseller on the web, but the number three
bookseller overall.As many as 2,260,000 surfers who visited
the web site bought books this quarter, an increase of nearly
50 percent from 1,510,000 customers account at the end of the
fourth quarter 1997, and an increase of 564 percent from
340,000 customers accounts at the end of the year ago first
quarter.

E-Commerce :

How a Transaction Takes Place-1

Here is an example of how an e-commerce transaction takes
place. Consider the following case study
Musba Book Suppliers has a large and good selection of
computer books; reference and computer-based training
materials. Sales are effected through the bookstore and an
on-line virtual bookstore at www.books.com.
Musba Book Suppliers wants to set up a web site in which
everything, from the moment a customer placed an order
to shipment of that order, was fully automated.
The challenging aspect was that the company ships some
200 books a day, and numerous transactions are called for

E-Commerce :

How a Transaction Takes Place-2

A customer order triggers a MS-Access stored query. The

customer sees real-time stock status on a HTML page. As
new titles arrive in the warehouse, a Microsoft Visual Basic
module loads incoming stock to the websites database.
Another Visual Basic module copies the order to the
customer service database and removes the order
information from the web, for security reasons. A separate
Visual Basic Module processes the order; handles customer
service needs, and exports the information to a system that
calls the companys credit card. This same application also
prints a packing slip, which goes to the warehouse.

E-Commerce :

How a Transaction Takes Place-3

Warehouse staff pull the books ordered and type the

reference number into the shipping system, which is
linked by an ODBC connection directly to the
customer database. With the reference number, the
shipping system knows who the customer is and where
the books are going. The warehouse staff attaches
shipping labels which goes to the shipping dock. A
Visual Basic-based application recognizes that the
order has been shipped and creates a shipping
confirmed mail message that is automatically sent to
the customer. The cycle is complete

Consumer finds
something she wants to
buy at a shop on the
Net

Verification and
remittance of actual
funds
Shop

Consumer sends on
enciphered request for
payment to her bank

The electronic bank

sends back a secure
packet of e-cash

Consumers Bank

Merchant
Server

Consumer
sends the ecash to the
shop

Shop

Consumer
Public Key

The shop
sends the
packet of
cash to its
bank

Merchant Bank

Agents and Intermediaries

To help organisations conduct business on the Web without
having to set up costly servers and devote dedicated
personnel to monitor orders and deliveries and other
transactions, a new breed of Agents or Internet E-commerce
Solution providers have sprung up.

Agents and Intermediaries

Another similar service providers site looks like this:

Good News, Bad News

Like any other technology, theres good and bad news.
The good news is that E-Commerce is a round the clock
advantage for the customer. It will eventually become standard.
Whats more, e-commerce allows fast and flexible execution
and response to market opportunities. The Web enables a
company to introduce a new product, get immediate customer
reaction, refine and perfect it, all without incurring huge
investments in a physical distribution infrastructure. Companies
betting on E-Commerce have begun to learn about their
customers online buying habits.
The bad news is that customer reaction may actually be in
jeopardy. Led to believe theyre transacting in real-time, they
could become disillusioned and take their business to
competitors or back to the offline world if their order is not
fulfilled quickly.

How do you pay Online

How safe would it be to use your

Credit Card Online

While such a concern is shared by many users, the risk has now
been reduced. This has come about due to the development of
Secure Internet Protocols and Payment Systems, and Server
solutions that can handle electronic transactions.
The Secure Electronic transaction (SET) initiative that major
Credit-Card issuers Visa International and Master Card are
backing is expected to solve such security risks. The SET
project, obtaining assistance from Microsoft Corp., IBM Corp.,
Netscape Communications Corp., SAIC, GTE, Teresa Systems
and Verisign, aims to deliver a transparent encryption system
suitable for all electronic transactions using PCs. The use of
Public Key encryption may also go a long way in allaying users
fear of safety.

How do you pay Online

Pay Cash over the Net

The type of solutions available today include third-party
payment organizations and credit card payment system on the
Net. Digicash, France, was the first third party payment
organization, in 1994, to implement a virtual money system,
with which clients and merchants could transact business in
relative safety. Digicash and later third-party payment
organizations developed payment and merchant systems based
on the RSA security system for transmitting encrypted data
over the Internet. Taken in conjunction with the development of
secure internet protocols (Netscape Secure Sockets Layer,
Enterprise Integration Technologies Secure-HTTP, MasterCard and Visa Internationals SET and the Joint Electronic
Payment Initiative), third-party organizations have attracted
banks and Credit Card Companies to the Internet.

How do you pay Online

Cyber-cash
Some of the third party payment offerings now available are
CyberCash, Ecash, First Virtual Payment System and
Clickshare.
CyberCash is a realtime secure, digital signature-based
credit card authentication service, developed by CyberCash
Inc. It acts as an intermediary between the consumer, the
merchant and the credit card clearing house.
Ecash on the other hand is digital money that is downloaded
by an Ecash client from a participating bank and stored on a
customers local computer. Ecash can be spent at merchant
systems that accept it; accepting merchants, in turn, must
deposit Ecash receipts at a participating bank.
Of the credit card payment systems available now on the Net,
ICVERIFY, from ICVERIFY Inc. is the most popular.
ICVERIFY processes and authorises credit card transactions
online.

Duty Free on the Net

Last month, the World trade Organization came to a decision
to keep global electronic commerce duty free, and agreed to
evolve a programme to deal with its development on the
Internet. The new agreement, involving trade ministers of 132
countries, bars governments from collecting any tariffs on
such transactions for atleast a year. It ofcourse has incurred
wrath from non-governmental organizations since such an
exercise would benefit corporates of developed countries;
governments, by the way, would lose the option of a revenue
earning source.The Global Internet Project(GIP) presented
the European Union (EU) with its recommendations on ecommerce last month. EU wants to develop a global charter
covering technical standards, illegal content, licenses,
encryption and data privacy on the Internet and other
Electronic networks.

Major components of E-COM

Shopping Cart (commerce server)

An application which helps the shopper to

browse through the product list and place an
order. Application should be capable of
maintaining the state information about the
shopper purchase details and his ID.It should
also be able to maintain the product list.
(Usually this is implemented with the help of
components(COM OBJECTS)). The
components interact with the database for
transaction processing.ASP provides support
for this.(Cookies too can be used for this).

Major components of E-COM

Payment module(Payment server)

Shoppers can make payments through credit
cards. Credit card No. is sent to the server
which can be stored in the database which
can be verified against a bank manually later.
Another method is to use payment servers
which allows on-line verification of credit
card numbers with the bank. It also provides
mechanisms for checksum verification.

Major components of E-COM

Security issues(security server)

Payments to the server is enabled with the help of a number of

security mechanisms
Browser-to-Web server data encryption and integrity with SSL
3.0
Browser to database password authentication by use of encrypted
digests (Kerberose,Identix,Cybersafe)
Protection for corporate databases with protocol-enabled
firewalls proxying and authenticating user connection requests
(Oracle has supplied sql*net proxy to all firewall vendors).
Web Application Server to Browser authentication by use of
digital signatures.
Security Server provides a Certificate Authority (CA) function,
including generation of public key/private key pairs and issuance
of industry-standard X.509 certificates.

Players in E-Commerce
Netscape is not the only player to move towards
facilitating its customers in e-commerce. IBM Corp
is also gearing itself up to provide e-business
solutions. Other players such as Hewlett-Packard Co.
and Compaq-Tandem have launched servers
(hardware/software) that will cater to electronic
commerce. Cognos Inc., a leader in business
intelligence tools, has developed Data merchant that
allows corporates to access business intelligence data
from anywhere around the globe, anytime they want
it.Finally, Microsoft and Sun Microsystems are also
not far behind, as both their technologies - ActiveX
and Java - are capable of providing solutions for
developers with security strategies to base their
products on.

Players in E-Commerce

Software companies that have made a mark

for themselves in providing E.Commerce
solutions out of the box are:

OpenMarket (LiveCommerce, Transact, ShopSite)

Sterling Commerce
iCat (Commerce Publisher, E.Commerce Suite)
Microsoft (Commerce Server)
Netscape (

Is E-Business all about the

Internet?

No, the basic foundation for e-business can

be laid without the Internet. Its all about
connecting your offices, suppliers, retailers
and streamlining your processes. Its about
letting your left hand know what your right
hand is doing and extending it to your
customers. Thats it. Later when you feel
youre ready or interested in reaching
millions of customers, the Internet may be
your answer.

But is it for me?

Of course, Today you can buy garments, music,

magazines, movie tickets and even vegetables on
the net. Many companies keep their branch offices
and employees informed of the latest
developments whether internal or external through
an intranet or even simple E-mail. No matter what
the nature and size of your business, companies
like IBM, Oracle etc.have ready solutions which
will make it more cost effective.

Is it safe?

Nobody would want to get into something

that wasnt secure. So when you are ready
for e-business youll find that many
organisations have developed solutions like
Real Time Intrusion Detection and Anti
Virus software. These along with personal
codes and passwords make sure that any
transaction that takes place or any
information that is shared is seen only by the
people its meant for.

Will I have to change my existing setup?

Certainly not! Theres only no problem even

if you are using different hardware and
software systems to do your work today.
There are companies that will help them all
work together, using cross-platform
technologies like Java to build smoothly
integrated, open e-business solutions that
work with both IBM and non-IBM
technology. Of course, it would be easier for
you if your system is scalable. Because then
you can add to it as your business grows.

What the Future Holds

Ricardo H. Dujua, general manager of EDINet
Philippines, speaking at the Supermarket Show 97 last
year predicted that soon more and more shoppers will use
the Internet as the medium of Business. The Electronic
system will eliminate the need to set up physical stores,
warehouses and carry inventory.
It is also probable that not only will the greater adoption of
e-commerce change the way retailers conduct business, it
may also bring pressure to bear on them to be more
responsive to customers needs.
The World is becoming increasingly networked, changing
our methods of working and lifestyles. Once the hypes are
cleared and the mist lifts, usage would be fun, business
easy.

In Future
While E-Commerce may not completely
replace other forms of Commerce, it is
likely to be the dominant mode of the
commercial transactions in the future.
Colleges and Schools including Business
Schools should reflect this trend in the
curriculum to train the future generation of
Managers.

Consumer Applications and Social

Interaction
In the long run, the e-commerce application
winners will be those that can change the way
consumers think and the way they do business.
One example might be applications oriented
toward social interaction. Lessons from history
indicate that the most successful technologies
are those that make their mark socially.
The TV and the Telephone are examples.

In Sum
In sum, the most successful marketplaces are
expected to be those that cater to consumer's
loneliness, boredom, education and career.
For instance, look at the success of on-line
chats and home shopping channels.
But debates rage over whether interactive TV
or on-line computer services will become
pivotal medium for solving consumer
loneliness.