Business on the Internet

"If your business is not online, then you are not in business!"- Bill Gates

для проверки Admitad 09.01.2022



Define e-commerce and e-Business

• Compare e-commerce with traditional commerce

• Understand media convergence

• Explain the business applications of e-commerce

• Discuss the need for e-commerce and e-Business

• Describe the basics of e-commerce: network and electronic transaction today



Commerce includes purchase, sale, and exchange of commodities. Therefore, it can be defined as an exchange of commodities or all activities involved in transferring goods from producers to consumers. Commerce has been a major part of human lives since the beginning of history. The implementation of the Internet has created a paradigm shift in the way businesses are conducted today. The past decade has witnessed the emergence of a new kind of commerce known as e-commerce.

According to the European Union’s Web site, e-commerce is a concept dealing with any form of business transaction or information exchange executed using Information and Communication Technology (ICT), between companies, companies and their customers, or companies and public administrations.

According to IBM’s Web site, e-Business is defined as the concept of transforming key business activities through the use of internet technologies.


1.1 E-Commerce and E-Business

Let us first understand the terms e-commerce and e-Business. Electronic commerce, also termed as e- commerce, is a process of buying and selling of goods or services using electronic systems. These electronic systems can either be the Internet or other computer networks. The World Wide Web plays a major role in the implementation of e-commerce in most of the organizations.

Did you know? J.P. Morgan annual forecast report estimates the value of global e-commerce in 2010 at$680 billion worldwide and up to 18.9% in the form of revenue. E-Commerce in theU.S. is expected to increase to $187 billion at 13.2%. J.P. Morgan predicts that global e- commerce revenue will increase to $963 billion by 2013.

Some use the terms e-commerce and e-Business in an interchangeable manner, but these terms refer to different concepts. The concept where ICT is used in buying and selling of goods or services between organizations and in Business-to-Consumer (B2C) transactions is known as e-commerce. On the other hand, the concept where ICT is used to enhance the key business processes through the facilities available on the Internet is known as e-Business. It comprises of any process by which

an organization conducts business over a computer network.The three main processes enhanced in e-Business are:1. Production processes, which include:

(a) Procurement

(b) Ordering and replenishment of stocks

(c) Processing of payments

(d) Electronic links with suppliers

(e) Production control processes

2. Customer-focused processes, which include:

(a) Promotional and marketing efforts

(b) Selling over the Internet

(c) Processing of customers’ purchase orders and payments

(d) Customer support

3. Internal management processes, which include:

(a) Employee services

(b) Employee training

(c) Internal information-sharing

(d) Video conferencing

(e) Recruiting

E-Commerce generally meets the needs of an organization, retailers and consumers to reduce the

costs. It also considers the quality of service and delivery of goods.


1.1.1 Evolution of E-Commerce

A combination of technological innovation and regulatory reform has helped in the evolution of ecommerce. In the early 1970s, e-commerce applications were first developed with innovations likeElectronic Funds Transfer (EFT) to electronically transfer funds from one organization to another.However, these applications were used in only a few corporations, financial institutions and other businesses. Later, Electronic Data Interchange (EDI) was introduced to electronically transfer

documents which extended electronic transfers from financial transactions to other types of transaction processing. E-Commerce of today started with the launch of the World Wide Web (WWW) and browsers in the early 1990s. The relaxation of government restrictions in the telecommunications sector and innovations have helped in the rapid growth of e-commerce. As a result, the barriers to enter and engage in e- commerce have fallen rapidly. The important milestones in the evolution of e-commerce are:

1. Internet/APRAnet emerged in 1969

2. WWW and HTML were invented at CERN in 1989

3. NSF increased the restrictions on commercial use of the Internet in 1991

4. Mosaic browser was invented at the University of Illinois and released to the public in


5. Netscape released the Navigator browser in 1994

6. Dell, Cisco, and others began to use the Internet aggressively for commercial transactions in 1995

Search on Web and prepare a report on the latest developments in e-commerce and e- Business which

occurred after the year 2000.


1.1.2 Factors Fueling E-Commerce

The three major factors fueling e-commerce are economic factors, marketing and customer interaction factors, and technology factors particularly multimedia convergence.

1. Economic Factors: Economic efficiency is one of the most apparent benefits of e-commerce. It can be achieved by decreasing communications costs, faster and more economic electronic transactions with suppliers, lower global information sharing and advertising costs, and cheaper customer service alternatives.

Economic integration can be either internal or external:

(a) Internal integration pertains to the electronic communication between various departments, and the networking of business operations and processes within an organization. It helps to store critical business information in digital form that can be recovered immediately and transmitted electronically. A corporate intranet is the best example of internal integration.

(b) External integration is the electronic communication between corporations, suppliers, customers or clients, and contractors in a virtual networking environment with the Internet as medium.

Did you know? Procter and Gamble, IBM, Nestlé, and Intel are some of the companies with corporate intranets.

2. Market and Customer Interaction Factors: Organizations are encouraged to use e-commerce in product promotion and marketing to capture international markets. Similarly, the Internet is used as a medium for improving customer service and support. The Internet also helps companies to provide their target consumers with more detailed product and service information.

The best example of successful use of the Internet for enhanced customer service and support is Brazil’s Submarino. It is the first largest company to sell books, CDs, video cassettes, DVDs, toys, electronic and computer products in Argentina, Mexico, Spain, and Portugal despite being a local Sao Paulo B2C e-commerce company in Brazil. Submarino has enhanced its customer service to offer logistical and technological infrastructure to other retailers including experience and expertise in credit analysis, tracking orders and product comparison systems.

3. Technology Factors: The key factor in the growth of e-commerce is the development of ICT.

Technology has played a very important role in digitizing content, compression and promotion of

open systems for the convergence of communication services into one single platform. This has led

to the setup of separate networks for cable television, television broadcast, telephone services,

and eliminated the need for Internet access. From the perspective of organizations, having only one

information provider implies lower communications costs.

In addition, technology convergence has helped to achieve the principles of universal access. At

present, the costs involved in installing telephone landlines in rural areas has a negative impact

on telecommunication companies. Revenues from installing landlines can be more attractive if the

landlines include cable TV and the Internet charges, instead of limiting to local and long distance

telephone charges. This implementation will help the government in minimizing the cost of

installing expensive landlines and providing access to information at a low cost to those in rural



1.2 Comparison of E-Commerce with Traditional Commerce

In spite of the fact that the goals and objectives of both e-commerce and traditional commerce are the same, they can be differentiated based on their business processes. The Web and telecommunication technologies play a major role in e-commerce. In e-commerce there may be no physical store, and in most cases the buyer and seller do not see each other.

In most of the cases, traditional commerce activities are used in business processes very efficiently and these processes do not need improvement with the help of technology. It is very difficult to sell using e- commerce when buyers wish to touch, smell, or examine the products.

Customers might be unwilling to buy high fashion clothing or food products if they cannot examine the products closely before agreeing to purchase them.

On the other hand, retail merchants engaged in traditional commerce have years of experience in creating a store environment that helps to convince a customer to buy. Sales people can develop skills that allow them to identify customer needs, and find products and services that meet those needs. Therefore, the art of personal selling and merchandizing is difficult to practice over electronic medium. Branded products like books or CDs can be effortlessly sold through e-commerce as one copy of a new book or CD is identical to other copies. The advantage of e-commerce over traditional commerce is the ability of a Web site to offer a wider selection of products and services and the facility to browse.

Table 1.1 depicts some examples of business processes that suit e-commerce and traditional commerce respectively.

Table 1.1: Comparison of E-Commerce and Traditional

Commerce Based on Business Processes

Electronic commerce

Sale/purchase of books or CDs

Online delivery of software

Advertising and promotion of travel services Online tracking of shipments

Traditional commerce

Sale/purchase of high fashion clothing

Sale/purchase of perishable food products Small denomination transactions

Sale of expensive jewelry and antiques

Gap, Toys-R-Us, Walmart, and Sears are some of the companies that are operating with a mix of traditional commerce and e-commerce.

Table 1.2 compares and contrasts traditional commerce and e-commerce. However, it is essential to know that currently many companies are functioning with a mix of traditional commerce and e- commerce.

Table 1.2: Comparison of Traditional Commerce and E-Commerce Based on Activity


Product information

Business communications Check product availability

Order generation

Product acknowledgements Invoice generation

Traditional commerce

Magazines, flyers

Regular mail, phone

Phone, fax and letter

Printed forms

Phone, fax

Printed forms

E- commerce

Web sites, online catalogs


E-mail, Web sites, and extranets

E-mail, Web sites

E-mail, Web sites, and EDI Web sites


1 .3 Media Convergence

The electronic marketplace is turning into a reality as many companies are using their resources and talents through mergers with other companies. The term E-Commerce is now irreversibly linked with the idea of convergence of companies centered on information like content, storage, networks, business applications, and consumer devices. Convergence means merging of consumer electronics, publishing, television, computers, and telecommunications for the purpose of enabling new forms of information-based commerce. The concept may be confusing for the public as the popular press uses the terms multimedia and cross- media interchangeably. Multimedia convergence refers to the conversion of data, voice, text, image, graphics, and full-motion video into digital content. Cross-media convergence applies to the

integration of various industries, such as, entertainment, publication, and communication media based on multimedia content. The two types of convergence are closely related to each other.

In the new era of interactive television, the lines between advertisements, entertainment, education, and services often become blurred. While watching a World Cup cricket match between India and Australia, you may develop an urge to know more about Australia. Instead of running to the local bookstore and purchasing a book, you can connect to an online database and search while not missing any part of the match. The information in these online databases is not limited to text but also provides photographs and digital videos (multimedia).

In other words, convergence requires removing the barriers between telecommunications, broadcasting,computing, movies, electronic games, and publishing industries to facilitate interoperability. Simple technological improvements driving the phenomenon of convergence are as follows: 1. Convergence of Content: This helps to translate all types of information content, such as, books, business documents, videos, movies, and music into digital information. Once the content is

converted into digital form, that information can easily be searched, encrypted, duplicated, and transmitted which suits today’s information processing systems.

2. Convergence of Transmission: This helps to compress and store digitized information so that it can be transmitted through existing phone and cable wiring. New techniques and other technological discoveries modify all types of information. Here, we can notice the convergence of communication systems that provide a medium to transmit voice, data image, and video without rewiring the neighborhood. 3. Convergence of Information: Some of the information access devices can function as both computers and televisions. For example, a telephone with internal fax machine, modem, and video monitor is capable of receiving fax, e-mail, and video.

Convergence is also being driven by certain market conditions including the following:

1. The availability of low-cost, high-performance enabling component technologies, such as,

semiconductors, storage and display devices, communications systems, and operating systems.

2. Entrepreneurs’ expectation of end-user demand for new applications—both products and services that rely on the above mentioned enabling technologies.

3. The regulatory actions that are creating competition in monopoly markets, such as, local and longdistance communications, telecommunication and cable equipment, and facilitating the rapid deployment of the new applications.


1.4 Business Application of E-Commerce

There are a variety of e-commerce applications that are constantly affecting the trends and prospects of a business. The primary applications of e-commerce are Business-to-Consumer (B2C), Business-to-Business (B2B), Consumer-to-Consumer (C2C), and Consumer-to-Business (C2B).

Other Applications of E-Commerce

1. Business-to-Employee (B2E)

2. Government-to-Government (G2G)

3. Government-to-Employee (G2E)

4. Government-to-Business (G2B)

5. Business-to- Government (B2G)

6. Government-to-Citizen (G2C)

7. Citizen-to-Government (C2G)

1.4.1 Anatomy of E-Commerce Applications

Nowadays, effective interactions are happening between businessmen and customers with the help of the Internet. People are comfortable with online buying and selling of products because of the ease with which things get done. The Web sites pertaining to online buying and selling are gaining

popularity because of rapidly advancing technology. E-Commerce applications mainly comprise of multimedia content and multimedia storage servers. It

also includes information delivery system, a device that functions as an interface for various e- commerce applications and network service providers that serve as access points.

Multimedia Content for E-Commerce Applications

Multimedia content is believed to be the backbone of electronic commerce applications. Multimedia is defined as the use of digital data in more than one format, such as, the combination of text, audio, video, and graphics in a computer file or document. Multimedia reflects the natural communication of people. It aims to combine the interactivity of a user- friendly interface with multiple forms of content. Multimedia is linked with hardware convergence happening in the telecommunication, computer, and cable industry. This is because the next generation of digital, interactive home entertainment is approaching technical completion.

From this perspective, multimedia refers to the combination of computers, television, and telephone technology in a single device. Multimedia systems are oriented towards numeric processing; hence they are considered much more accurate than conventional database systems. Business professionals agree that more than 90% of the information that companies use for business operations and decision making exists outside the traditional database systems. This external information is crucial for smooth organizational functioning. External information is in the form of technical manuals, memos, e-mail, problem reports, sales brochures, and product design.

Most business systems use only a portion of the information and communication found in the workplace. Therefore, the aim of multimedia is to increase the usefulness of all information through the processing and distribution of new forms like images, audio, and video. The traditional, separate business divisions no longer function in the world of multimedia. In other words, every form of information is interrelated to other forms. However, the access to multimedia information relies on the hardware capabilities of the customer. For many years, capability of the computer hardware was well ahead of the requirements of software applications available to run on it.

An electronic book includes photographs, animation, voice, video clips, and a host of other things.

The key elements for the success of e-commerce applications are innovativeness and diversity of multimedia packaging and content. The current providers of multimedia information are profited by broadcasting television productions, traditional print publications, and software and information services. These information providers are supported by a group of small companies or individuals producing content, such as, developing software programs, creating videos, writing articles, and other entrepreneurial activities. However, there are plenty of opportunities for new providers who can offer innovative content that meets consumer requirements which are not being fulfilled by existing providers.

Multimedia Storage Servers

The latest advancement that has happened in the field of communication and technology has made it possible and economical to access a variety of information sources such as, books, magazines, pictures, video clips, and scientific data on the Internet. In order to give such services, multimedia storage servers that are connected to customer sites should be provided with high-speed networks. Due to some features of digital audio and video, considerable variation has been implemented to the design of multimedia services.

The features are:

1. Instantaneous Storage and Retrieval: Audio and video media are also referred to as “Continuous” Media (CM), since they consist of a string of media quanta. Media quanta like video frames or audio samples communicate the meaning only when accessed continuously in time. Moreover, some media constituents whose playback is temporally coordinated are usually included in a multimedia object.

2. Large Data Transfer Rate and Storage Space Necessity: The playback of digital video and audio transfer data is at a very high speed. Hence, a useful mechanism has to be provided by multimedia service for storing, recovering, and controlling data in vast quantities at high rates.

The design phase of such multimedia services includes some critical components.

They are:

1. Multimedia storage servers that help in supporting constant revival of media information from the storage subsystem.

2. Network subsystems that assure synchronous and proper delivery of media information to the display sites.

3. Images, text, audio, and video are some of the multimedia objects. These multimedia objects can be accessed with the help of multimedia storage servers. There is a difference in the design of such servers as compared to the usual servers. This is because of:

(a) Real-time storage and retrieval needs.

(b) Huge storage space and data transfer rate requirements of digital multimedia.

Advancement in the field of communication and technology results in the growth of various multimedia applications.

Interactive multiplayer games, distance education and online virtual worlds are some of the kinds of multimedia applications.

The two main differences when compared to the usual applications are:

1. Multimedia applications provide storage, transmission, and processing of heterogeneous data

types, such as, text, image, audio, and video. The size, data rate, real-time requirements of these

heterogeneous data can be varied.

2. These applications require diverse performance requirements than conventional applications. For

instance, requirements concerning timeliness on the networks and operating systems.

E-Commerce Applications

It is a must for e-commerce applications to have certain capabilities to handle the activities involved in a business. Accepting and managing payments, managing the checkout pipeline, and choosing, collecting and distributing products to customers are some of the capabilities required. E-Commerce applications are also used by companies to improve the online experience of customers and hence boost customer traffic.

Did you know? IBM does business with more than 12,000 suppliers over the Web around the world. IBM uses the Internet and Web technologies as its transaction-processing network, such as, sending purchase orders, receiving invoices, and paying suppliers.

Electronic Payment Systems (EPS)

The method of financial exchange that takes place between buyers and sellers in an online

transaction with the aid of digital financial instruments is termed as EPS. These digital financial

instruments can be encrypted credit card numbers, electronic checks, or digital cash backed by a

bank, an intermediary, or by legal tender.

EPS has a lot to do with billing and payment which are considered as the final activities in any

sales transactions. It is a key element in the closure of an e-commerce cycle. The growth of

e-commerce in developing countries is affected adversely because of the weak electronic payment

systems. Due to the several legal and business issues that exist in these countries, entrepreneurs

are not able to receive credit card payments over the Internet. Transaction security is the major

concern here.

Factors to be Considered for an E-Commerce Web site

There are four factors to be considered before having a Web presence for your business. They are:

1. Content development

2. Research analysis

3. Strategy planning

4. Branding

Search the Internet and discuss how the four factors, such as, content development, research

analysis, branding, and strategy planning affect the development of an e- commerce Web site.

Anatomy of an E-Commerce Web Site

E-Commerce Web sites help considerably to foster online business. The main aim of such Web sites is

to convert the user to a potential customer. Your Web site must be attractive enough with lots of

useful content and products in order to be noticed by various search engines and customers.

An e-commerce site must have some important elements, they are:

1. Online Product Catalog: This is the place where information about the products is stored and


2. Shopping Cart: This is an interface that customers apply to pick the products of their choice.

It provides necessary information about the product that customers want to buy. It also supports

the customers with the checkout process.

3. Checkout System: This is a method which collects required payment details from the customer.

These payment details include shipping and billing addresses, credit card details, or other payment

mechanism details. It also presents shipping rates, taxes, vouchers, or estimates other variations

to reach at the final cost.

4. Payment Gateway: This is a service with the help of which payment and credit card details can be

sent from the Web site to a merchant account. The account needs to be assigned by a bank or

financial organization that deals with online transactions. Payment gateway is a highly protected

service. It is also responsible to handle and resolve any feedback or complaints received from the

bank. For example, payment gateway service should handle issues like inadequate funds for

customer or the usage of invalid credit card.

5. Merchant Account: This is considered to be a special bank account. With the help of merchant

account, online payments can be done by the Web sites using credit or debit cards. The banks that

provide merchant account facility charge fees per transaction and also for transaction types.

1.4.2 E-Commerce Consumer Applications

The global consumer marketplace is spreading at a fast rate, but with its own problems. Consumer applications such as, online stores and electronic shopping malls are fast emerging but access is still inadequate in many cases. Many of the systems are not consumer friendly or well integrated. For example, it may be feasible to browse the site of an e-store via the Web, but there may be no directories or catalogs to search for the specific address of the store. Such lack of integration forces the consumer to spend more time searching for stores and online information. There is no standardization of electronic payment methods on the Web and the security of online payment still remains a major concern. These basic issues need to be resolved.Some fundamental business issues must be addressed before consumer-oriented e-commerce can become widespread.

These are:

1. Establishment of standard business processes for buying and selling products and services in electronic markets

2. Standardization of protocols for order-taking, online payments and service delivery

3. Development of privacy and security methods for secure transactions

In other words, to make consumer-oriented e-commerce more effective, we need to understand the components of the business process, the technology and the integration of the two.

Table 1.3 shows the classification of consumer-oriented e-commerce applications.