CHAPTER 1

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Chapter One: An Overview to E-commerce

Learning outcome
After completing this chapter learners should able to:
 Understand what is e-commerce?
 Distinguish e-commerce and e-business
 Understand the unique characteristics of e-commerce
 Explain the advantages and disadvantages of e-commerce.
1.1 Introduction of E-commerce
Recently most commercial transactions still take place through conventional channels, rising
numbers of consumers and businesses are using the Internet for electronic commerce.
So much business is now enabled by or based upon digital networks that we use the terms
electronic business and electronic commerce frequently throughout this text. E-commerce is the
part of e-business that deals with the buying and selling of goods and services electronically with
computerized business transactions using the Internet, networks, and other digital technologies. It
also encompasses activities supporting those market transactions, such as advertising, marketing,
customer support, delivery, and payment.
In its simplest form ecommerce is the buying and selling of products and services by businesses
or consumers over the World Wide Web (WWW). People use the term "E-Commerce" or
"Online Shopping" to describe the process of searching for and selecting products in online
catalogues and then "checking out" using a credit card and encrypted payment processing.
To sum up E-commerce is the use of the Internet and the Web to transact business. Digitally
enabled transactions include all transactions mediated by digital technology. For the most part,
this means transactions that occur over the Internet and the Web. Commercial transactions
involve the exchange of value (e.g., money) across organizational or individual boundaries in
return for products and services. Exchange of value is important for understanding the limits of
e-commerce. Without an exchange of value, no commerce occurs.
1.2 Origin of E-commerce
Ecommerce was introduced 40 years ago and, to this day, continues to grow with new
technologies, innovations, and thousands of businesses entering the online market each year. The
convenience, safety, and user experience of ecommerce has improved exponentially since its
inception in the 1970’s.

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 1960-1982
Paving the way for electric commerce was the development of the Electronic Data Interchange
(EDI). EDI replaced traditional mailing and faxing of documents with a digital transfer of data
from one computer to another. Trading partners could transfer orders, invoices and other
business transactions using a data format. EDI allowed the transfer of data seamlessly without
any human intervention.
Michael Aldrich, an English inventor, innovator and entrepreneur is credited with developing the
predecessor to online shopping. The idea came about during a stroll with his wife and Labrador
when Aldrich lamented about their weekly supermarket shopping expedition. This conversation
sparked an idea to hook a television to their supermarket to deliver the groceries. Immediately
after the discussion Aldrich quickly planned and implemented his idea.
 1982-1990
It was apparent from the beginning that B2B online shopping would be commercially lucrative
(profitable) but B2C would not be successful until the later widespread use of PC’s and the
World Wide Web, also known as, the Internet. In 1982, France launched the precursor to the
Internet called, Minitel. The online service used a Videotext terminal machine that was accessed
through telephone lines. The Minitel was free to telephone subscribers and connected millions of
users to a computing network.
 90’s to Present
In 1990 Tim Berners Lee, along with his friend Robert Cailliau, published a proposal to build a
“Hypertext project” called, “Worldwide Web.” That same year, Lee, using a Next computer
created the first web server and wrote the first web browser. Shortly thereafter, he went on to
debut the web on Aug. 6, 1991 as a publicly available service on the Internet. When Berner’s Lee
decided he would take on the task of marrying hypertext to the Internet, in doing that, the process
led to him developing URL (uniform resource locator), HTML (hypertext markup language) and
HTTP (hypertext transfer protocol).
1.3 Definition of e-commerce
E-commerce the buying and selling of products and services by businesses and consumers
through an electronic medium, without using any paper documents. E-commerce is widely
considered the buying and selling of products over the internet, but any transaction that is
completed solely through electronic measures can be considered e-commerce.

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Electronic commerce (e-commerce) is often thought simply to refer to buying and selling using
the Internet; people immediately think of consumer retail purchases from companies such as
Amazon. But e-commerce involves much more than electronically mediated financial
transactions between organizations and customers.
These definitions show that electronic commerce is not solely restricted to the actual buying and
selling of products, but also includes pre-sale and post-sale activities across the supply chain.
E-commerce is the use of electronic communications and digital information processing
technology in business transactions to create, transform, and redefine relationships for value
creation between or among organizations, and between organizations and individuals.
E-commerce refers to paperless exchange of business information using following ways.
Electronic Data Exchange (EDI), Electronic Mail (e-mail), Electronic Bulletin Boards,
Electronic Fund Transfer (EFT) and Other Network-based technologies.
Examples of E-Commerce
 An individual purchases a book on the Internet.
 A government employee reserves a hotel room over the Internet.
 An individual withdraws funds from an automatic teller machine (ATM).
 Accepting credit cards for commercial online sales
 Driving information through a company via its intranet
 Selling to consumers on a pay-per-download basis, through a Web site, etc
1.4 E-business vs. E-commerce
E-commerce: is more specific than e-business. E-business involves the use electronic platforms-
intranets, extranets and Internet to conduct a company’s business. Internet and other
technologies now help companies carry on their business faster, more accurately and over a
range of time and space. They have created intranets to help employees communicate with each
other and access information found in the company’s computers. They have set up extranets
with major suppliers and distributers to assist information exchange, orders, transactions and
payments. Companies such as Cisco, Microsoft and Oracle run almost entirely as e-business, in
which memos, invoices, engineering drawings, sales and marketing information – virtually
everything-happens over the Internet instead of on paper.
E-business: includes all electronic–based information exchanges within or between companies
and customers. In contrast e-commerce involves buying and selling processes supported by

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electronic means, primarily the Internet. E-markets are market-spaces rather than physical
marketplaces. Sellers use e-markets to offer their products and services online. Buyers use them
to search for information, identify what they want, and place orders using credit or other means
of electronic payment. Electronic transactions involve the transfer of ownership or rights to use a
good or service.
E-Business Refers to the use of the Web, Internet, intranets, extranets or some combination
thereof to conduct business. E-business is similar to e-commerce, but it goes beyond the simple
buying and selling of products and services online. E-business includes a much wider range of
businesses processes, such as supply chain management, electronic order processing and
customer relationship management. E-business processes, therefore, can help companies to
operate more effectively and efficiently.
Shortly the difference between e-commerce and e business is:
 E- Business is broader in scope and e-commerce is just aspect or a subset of it.
 E-commerce only covers business transactions such as buying and selling of goods and
services over the internet.
 E-commerce essentially involves monetary trade while in e-business, money transaction
is not necessary.
1.5 Unique features of Electronic Commerce
E-commerce has seven unique characteristics that distinguish from the traditional business
transaction. These are ubiquity, global reach, universal standards, richness, information density
and personalization/customization.
Each unique characteristic is discussed below from business significance and e-commerce
technology dimension.
A. Ubiquity
E-commerce, in contrast, is characterized by its ubiquity: it is available just about everywhere, at
all times. It liberates the market from being restricted to a physical space and makes it possible to
shop from your desktop, at home, at work, or even from your car, using mobile commerce. From
a consumer point of view, ubiquity reduces transaction costs—the costs of participating in a
market. To transact, it is no longer necessary that you spend time and money traveling to a
market.

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B. Global Reach
The potential market size is roughly equal to the size of the online population of the world. E-
Commerce Technology seamlessly stretches across traditional cultural and national boundaries
and enables worldwide access to the client. E-Commerce website has ability to translate the
multilingual websites as well as allow the access to visitors all over the world, purchase products
and make business interactions.
C. Universal standards

The technical standards of the Internet are shared by all of the nations in the world. The whole
online tradition is growing and expanding their features in the world. To development any kind
of business need Internet and communication application which make the business relationship
more lovingly and attractive for secure business and successful business.
D. Richness
Users can access and utilize text messages and visual and audio components to send and receive
information. An individual may see information richness on a company's blog if a post contains a
video related to a product and hyperlinks that allow him to look at or purchase the product and
send information about the post via text message or email.
E. Interactivity
E-commerce technologies allow two-way communication between the merchant and the
consumer. interactivity, meaning they enable two-way communication between merchant and
consumer. Television, for instance, cannot ask viewers any questions or enter into conversations
with them, and it cannot request that customer information be entered into a form. As a result, e-
Commerce technologies can adjust to each individual’s experience. For example, while shopping
online, an individual is able to view different angles of some items, add products into a virtual
shopping cart, checkout by inputting his payment information and then submit the order.
F. Personalization
In E-commerce technologies merchants can target their marketing messages to specific
individuals by adjusting the message to a person’s name, interests, and past purchases.
Technologies within e-Commerce allow for the personalization and customization of marketing
messages that groups or individuals receive. An example of personalization includes product
recommendations based on a user's search history on a Web site that allows individuals to create
an account.

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G. Information density
The use of e-Commerce reduces the cost to store, process and communicate information, At the
same time, accuracy and timeliness increase; thus, making information accurate, inexpensive and
plentiful. E-commerce technologies reduce information collection, storage, processing, and
communication costs. For example, the online shopping process allows a company to receive
personal, shipping, billing and payment information from a customer all at once and sends the
customer's information to the appropriate departments in a matter of seconds.
1.6 Comparison of traditional commerce and E-commerce
Traditional Commerce or Commerce is a part of business, which encompasses all those
activities that facilitate exchange. Two kinds of activities are included in commerce, i.e. trade
and auxiliaries to trade. The term trade refers to the buying and selling of goods and services for
cash or kind and auxiliaries to trade, implies all those activities like banking, insurance,
transportation, advertisement, packaging, and so on, that helps in the successful completion of
exchange between parties. In e-commerce there may be no physical store, and in most cases the
buyer and seller do not see each other.
Traditional commerce presents product information by using magazines, flyers. On the other
hand, e-commerce presents by using web sites and online catalogs. Traditional commerce
communicates by regular mail, phone yet e-commerce by e-mail. Traditional commerce checks
product availability by phone, fax and letter. However, e-commerce checks by e-mail, web sites,
and internal networks.
Electronic commerce is very much like traditional commerce. It also involves an exchange of
goods. But the exchange of goods is conducted online. Technologies such as email, electronic
data interchange and electronic fund transfer are used to track transactions and receive payments.
Some of the d/c between E-commerce and traditional commerce are explained briefly below.
 Cost effective
E-commerce is very cost effective when compared to traditional commerce. In traditional
commerce, cost has to be incurred for the role of middlemen to sell the company’s product. The
cost incurred on middlemen is eliminated in e-commerce as there is a direct link between the
business and the customer. The total overhead cost required to run e-business is comparatively
less, compared to traditional business.

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 Time saving
It takes a lot of time to complete a transaction in traditional commerce. E-commerce saves a lot
of valuable time for both the consumers and business. A product can be ordered and the
transaction can be completed in few minutes through internet.
 Convenience
E-commerce provides convenience to both the customers and the business. It provides better
connectivity for its prospective and potential customers as the website can be accessed virtually
from anywhere, anytime through internet. It is not necessary to move away from their work place
or home to locate and purchase a desired product.
But traditional commerce is not convenient method as that of E-commerce. Customers have to
move away from their home or work place to locate and purchase a desired product.
 Geographical accessibility
In traditional commerce, it may not be easy to expand the size of the market from regional to
national level. Business organizations have to incur a lot of expenses on investment to enter
international market. In e-commerce it is easy to expand the size of the market from regional to
international level.
 Introduction of new products
In traditional commerce, it takes a lot of time and money to introduce a new product and analyze
the response of the customers. Initially, cost has to be incurred to carry out pilot surveys to
understand the taste of the customers. In e-commerce, it is easy to introduce a product on the
website and get the immediate feedback of the customers. Based on the response, the products
can be redefined and modified for a successful launch.
 Profit
E-commerce helps to increase the sales of the organization. It helps the organization to enjoy
greater profits by increasing sales, cutting cost and streamlining operating processes. The cost
incurred on the middlemen, overhead, inventory and limited sales pulls down the profit of the
organization in traditional commerce.
 Physical inspection
E-commerce does not allow physical inspection of goods. In purchasing goods in ecommerce,
customers have to rely on electronic images whereas in traditional commerce, it is possible to
physically inspect the goods before the purchase.

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 Time accessibility
Business is open only for a limited time in traditional commerce. Round the clock (24 x 7)
service is available in e-commerce.
 Product suitability
E-commerce is not suitable for perishable goods and high valuable items such as jewelry and
antiques. It is mostly suitable for purchasing tickets, books, music and software. Traditional
commerce is suitable for perishables and touch and feel items. Purchasing software, music in
traditional commerce may appear expensive,
 Human resource
To operate in electronic environment, an organization requires technically qualified staff with an
aptitude to update themselves in the ever changing world. E-business has difficulty in recruiting
and retaining talented people. Traditional commerce does not have such problems associated
with human resource in non-electronic environment.
 Customer interaction
In traditional commerce, the interaction between the business and the consumer is a “face-to-
face”. In electronic commerce, the interaction between the business and the consumer is “screen-
to-face”. Since there is no personal touch in e-business, companies need to have intimate
relationship with customers to win over their loyalty.
 Process
There is an automated processing of business transactions in electronic commerce. It helps to
minimize the clerical errors. There is manual processing of business transactions in traditional
commerce. There are chances of clerical errors to occur as human intervention takes place.
 Business relationship
The business relationship in traditional commerce is vertical or linear, whereas in electronic
commerce the business relationship is characterized by end-to-end.
 Fraud
Lot of cyber frauds take place in electronic commerce transactions. People generally fear to give
credit card information. Lack of physical presence in markets and unclear legal issues give
loopholes for frauds to take place in e-business transactions. Fraud in traditional commerce is
comparatively less as there is personal interaction between the buyer and the seller.

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1.7 Advantages and disadvantage of E-commerce
1.7.1 Advantages of E-Commerce
Some advantages that can be achieved from e-commerce include:
1. Being able to conduct business 24 x 7 x 365: E-commerce systems can operate all day
every day. Your physical storefront does not need to be open in order for customers and
suppliers to be doing business with you electronically.
2. Access the global market place: The Internet spans the world, and it is possible to do
business with any business or person who is connected to the Internet. Simple local
businesses such as specialist record stores are able to market and sell their offerings
internationally using e-commerce.
3. Speed: Electronic communications allow messages to traverse the world almost
instantaneously. There is no need to wait weeks for a catalogue to arrive by post: that
communications delay is not a part of the Internet / e-commerce world.
4. Market space: The market in which web-based businesses operate is the global market. It
may not be evident to them, but many businesses are already facing international competition
from web-enabled businesses.
5. Opportunity to reduce costs: The Internet makes it very easy to 'shop around' for products
and services that may be cheaper or more effective than we might otherwise settle for. It is
sometimes possible to, through some online research, identify original manufacturers for
some goods - thereby bypassing wholesalers and achieving a cheaper price.
6. Efficient applications development environment: - 'In many respects, applications can be
more efficiently developed and distributed because the can be built without regard to the
customer's or the business partner's technology platform. Application updates do not have to
be manually installed on computers. Rather, Internet-related technologies provide this
capability inherently through automatic deployment of software updates' (Gascoyne &
Ozcubukcu, 1997:87).
1.7.2 Disadvantages of E-Commerce
Some disadvantages and constraints of e-commerce include the following.
1. Time for delivery of physical products: It is possible to visit a local music store and walk
out with a compact disc or a bookstore and leave with a book. E-commerce is often used to

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buy goods that are not available locally from businesses all over the world, meaning that
physical goods need to be delivered, which takes time and costs money. In some cases, there
are ways around this, for example, with electronic files of the music or books being accessed
across the Internet, but then these are not physical goods.
2. Physical product, supplier & delivery uncertainty: When you walk out of a shop with an
item. You have it; you know what it is, where it is and how it looks. In some respects, e-
commerce purchases are made on trust. This is because, firstly, not having had physical
access to the product, a purchase is made on an expectation of what that product is and its
condition. Secondly, because supplying businesses can be conducted across the world, it can
be uncertain whether or not they are legitimate businesses and are not just going to take your
money. Thirdly, even if the item is sent, it is easy to start wondering whether or not it will
ever arrive.
3. Perishable goods: Forget about ordering a single gelato ice cream from a shop in Rome!
Though specialized or refrigerated transport can be used, goods bought and sold via the
Internet tend to be durable and non-perishable: they need to survive the trip from the supplier
to the purchasing business or consumer.
4. Returning goods: Returning goods online can be an area of difficulty. The uncertainties
surrounding the initial payment and delivery of goods can be exacerbated in this process.
Will the goods get back to their source? Who pays for the return postage? Will the refund be
paid? Will I be left with nothing? How long will it take? Contrast this with the offline
experience of returning goods to a shop.
5. Privacy, security, payment, identity, and contract: Many issues arise - privacy of
information, security of that information and payment details, whether or not payment details
(eg credit card details) will be misused, identity theft, contract, and, whether we have one or
not, what laws and legal jurisdiction apply.
6. Size and number of transactions: E-commerce is most often conducted using credit card
facilities for payments, and as a result very small and very large transactions tend not to be
conducted online. The size of transactions is also impacted by the economics of transporting
physical goods.

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