Table of Contents
I. E-Commerce: An Introduction
II. History of E-Commerce
III. Economic Impact
IV. Advantages of E-Commerce
V. Disadvantages of E-Commerce
VI. The Future of E-Commerce
VII. The Conclusion
E-Commerce: An Introduction
With the astonishing growth of the Internet, many companies are finding new and exciting ways to expand upon their business opportunities. There are very few successful companies that do not use computers in their everyday business activities, which also means there are few companies that do not use E-commerce. To emphasize the point that the effect of the Internet is so widespread in today’s business communities, one online article stated that more than 100,000 companies have Internet addresses, and 20,000 companies have Web-sites on the Internet as of February 1999 (DataQuest, 1999). These numbers have more than tripled since 1995, and the trend shows no signs of slowing. But, what exactly is E-commerce? To most casual Internet surfers, E-commerce means online shopping; “for workaholics pointing their web browser to Amazon.com to order an emergency present because they forgot someone’s birthday again.” (Weiss, 1999) As we will soon find out, this is far from the case.
Simply put, E-commerce is the exchange of business information between two or more organizations. An example of this would be buying and selling products or services over the Internet. E-commerce became very popular soon after it proved to be an efficient means to conduct long distance transactions. The purpose of this report is to discuss some of the advantages and disadvantages of E-commerce, as well as examining its potential for the future of business.
Electronic commerce, or E-commerce has developed very rapidly in the last few years and has left some people wondering what it is all about. “Most people think E-commerce is just about buying and selling things over the Internet.” (Wareham, 2000) E-commerce is a broad term describing the electronic exchange of business data between two or more organizations’ computers. Some examples might be the electronic filing of your income tax return, on-line services like Prodigy, and on-line billing for services or products received. E-commerce also includes buying and selling any item over the Internet, electronic fund transfer, smart cards, and all other methods of conducting business over digital networks. The primary technological goal of E-commerce is to integrate businesses, government agencies, and contractors into a single community with the ability to communicate with one another across any computer platform.” (Edwards, 1998)
History of E-commerce
Electronic commerce was built on a foundation that was started more than 125 years ago with Western Union’s money transfer as an example of telegraph technology. In the early 1900’s, the advent of credit cards as a payment system revolutionized the process of automated commerce functions. In the mid 1980’s, the introduction of the ATM (automated teller machine) card was the latest improvement to electronic commerce. The Internet was conceived in 1969 when the Department of Defense began funding the research of computer networking. The Internet, as a means for commerce, did not become reality until the 1990’s. Before this time, it was mainly a tool for the army, and a research device for some American universities. Its popularity grew when it proved to become a fast and efficient means to conduct long distance transactions, as well as an effective way to distribute information.
Clearly, E-commerce will change the face of business forever. Companies that are thousands of miles away can complete business transactions and exchange information in a matter of seconds. As one online article explained:
“Dell Computers sells more than $14 million worth of computer equipment a day from its web-site. By taking their customer service department to the web, Federal Express began saving $10,000 a day. The Internet provides businesses with the opportunity to sell their products to millions of people, 24 hours a day.” (Baxton, 1999)
Figure #1 shows the amount of revenues generated by the on the Internet dating back to 1996 as well as estimating possible revenues through the year 2002. With 1998, revenue equaling almost 74 billion dollars and experts predicting that it will climb to as much as 1,234 billion dollars by the year 2002, anyone can see that E-commerce is the wave of the future.
Figure #1- Internet generated revenues in US dollars. (Source: NUA Internet Surveys)
“Without a doubt, the Internet is ushering in an era of sweeping change that will leave no business or industry untouched. In just three years, the Net has gone from a playground for nerds into a vast communications and trading center where some 90 million people swap information or do deals around the world. Imagine: It took radio more than 30 years to reach 60 million people, and television 15 years. Never has a technology caught fire so fast.” (Edwards, 1998)
Advantages of E-commerce
Reduced Per Transaction Cost
The number one advantage that E-commerce possesses is its speed. The Internet and World Wide Web give businesses opportunities to exchange messages or complete transactions almost instantaneously. Even with the slowest connections, doing business electronically is much faster than traditional modes. With increased speeds of communication, the delivery time is reduced and that makes the whole transaction from start to finish more efficiently. In addition, you can find practically any product available for sale on the Internet, as one author put it “from books and compact disks (from www.amazon.com) to French bread (available from www.sourdoughbread.com)” (Buskin, 1998). Even more significant is the fact that information appearing on the Internet can be updated continuously and rapidly. This gives business owners the ability to inform customers of any changes to the service that they are offering. This also allows them to update marketing and promotional materials as often and as frequently as possible.
The second advantage of the electronic commerce is the opportunity it offers to save on costs. As an advertising medium, promotion using a web site results in the sale of ten times the number of units of one-tenth of advertising budget. In addition, web based promotion cost roughly one quarter of direct mail expenditures. Colorful, graphical are always less expensive than four color printing and distributing printed materials. AMP International of Harrisburg, once printed its catalogues at a cost of 8 million dollars. By putting its stock of 70,000 items on the web, such costs have been greatly reduced and sales have increased. Furthermore, the specially designed web site makes it easier for the customer to identify desired equipment parts than the paper catalogue ever did. (Cameron 19)
The Web can reduce the call volume and cost for providing effective customer support. For example, Federal Expresses web site enables customers to track their own packages with a cost to the company of $ 0.10 per inquiry. When live operators handle these inquiries over toll-free telephone lines, each call costs federal Express $ 7. One quickly see that offloading any telephone traffic to the web site results in substantial savings. Files of frequently asked questions (FAQ’s) at SunSolve reduced the company’s support costs by $4 million. Lotus Development Corporation can manage six times the volume of calls with the web and the telephone staff as it could by telephone alone. There is no question is cost effective. (Cameron 19)
“In addition to cost savings, Web-based E-commerce provides companies with an expedient global reach that cannot be duplicated. In no other medium can a company globally market its products and, in only one month, receive orders around the world. While success depends on how well the site is promoted online, new vistas open up for small and large businesses alike, without physically placing offices in other countries or using other forms of localized advertising.” (Cameron 20)
At SGI, the Silicon Surf Web site daily receives 15,000 visitors from 60 countries. These visitors download 18 gigabytes of information from the site. Even if SGI could reach these visitors through another method, marketing representatives at the company estimate that it would cost them $100,000 to distribute the downloaded information in printed format. (Cameron 20)
Because of differences in time zones, coordinating international business negotiations can be highly inconvenient. Providing support and service 24 hours per day, seven days per week is expensive. However, Web sites, unlike salespeople, are always online. Users can find the answers to their questions any day of the year and can E-mail inquiries if the Web site does not answer their questions. In addition, prospects that are unaware of the company’s existence can find it online because Web sites can be indexed by the Internet search engines under a variety of keywords. A Web site becomes the company’s permanent home base, an information resource continually available to the world. (Cameron 20)
Allowing customers to transact business at their convenience can result in increased sales. Expro, that supplies parts to oil companies, set up a Web site enabling engineers from Shell Oil on a tanker in the North Sea to immediately place orders on the Web, rather than waiting to return onshore. The engineers admit that they do, in fact, place more orders because they can place orders when they are facing the need for the product on the oil rig. (Cameron 21)
The cost for Web-based sales decreases even further if back-end systems are integrated with the Web site so orders and fulfillment can occur without human intervention. An online store can afford to be open at all times of the day and every day of the year. Few real world stores can justify such an arrangement. (Cameron 21)
Existing businesses can create Web sites as an additional sales channel, but the Web also opens the possibilities for new types of enterprises that have no real-world counterparts. In the virtual of cases, a store can have no inventory and no square footage to maintain. CUC International runs this types of enterprise, drop-shipping its products from distributor to customer. Other stores such as wine seller Virtual Vineyards and bookstore Amazon.com keep some items in inventory, but have no retail outlets apart from their Web sites. Manufacturing companies can assemble products as need arises, following the lead of such PC manufacturers as Gateway and Dell rather than maintaining huge inventories. Even stores with retail outlets find that their Web-based stores do not face the same shelf space limitations real-world stores do. No restrictions exist on the number of items an online store can carry.
Disadvantages of E-commerce
Privacy and Security
Lack of Bandwidth
Willingness to Pay
A potential source of trouble is customer concerns with privacy and security. Anything sent over the Internet is sent through several different computers before it reaches its destination. The concern regarding Internet security and privacy is that unscrupulous hackers can capture credit card or checking account data as it is transferred or break into computers that hold the same information. Security on the Internet is much like security for your home. There is a point when the effort outweighs the advantages. As with your home you usually stop adding security features when you feel safe. Making a customer feel safe is what is important in doing business on the Internet. “Even though no one can guarantee 100% security of transferring financial information over the Internet, E-commerce is still safer than using credit cards at an actual store or restaurant, or paying for something with the use of a 1-800 number” (unknown author, 1999). Also, every time you throw away a credit card receipt you could make yourself vulnerable to fraud. But how do we, as consumers, know this for sure? What precautions do E-commerce websites take to avoid such problems? The answer is simple: encryption.
Ever since the 2.0 versions of Netscape Navigator and Microsoft Internet Explorer, transactions can be encrypted using Secure Sockets Layer (SSL), an Internet protocol that creates a secure connection to the server, protecting the information as it travels over the Internet. SSL uses public key encryption, one of the strongest encryption methods around. A way to tell that a Web site is secured by SSL is when the URL begins with https instead of http. Browser makers and credit card companies are also promoting an additional security standard called Secure Electronic Transactions (SET). SET encodes the credit card numbers that sit on vendors’ servers so that only banks and credit card companies can read the numbers. “Obviously no E-commerce system can guarantee 100-percent protection for your credit card, but you are less likely to get your pocket picked online than in a real store.” (Weiss, 1999)
A second important roadblock to E-commerce is bandwidth. Many users utilize modems and dial-up Internet connections. For low-speed connections, graphics that enhance the overall design or illustrate products for sale take considerable time to download. In areas where one must pay by the minute for a relatively slow Internet connection, consumers are unlikely to spend much time online browsing for bargains. The shopping experience is both too slow and too expensive to attract many users until higher-speed connections using cable modems or integrated service digital network (ISDN) are available to the majority of users, consumer-based E-commerce will not reach its full potential. Additionally, the Internet cannot compete at current speeds with existing technologies such as CD-ROMs, which can deliver multimedia information far more effectively. (Cameron 25)
E-commerce is based on the assumption that the participants will pay for what they buy. There has been a noted reluctance among Internet users to actually pay, particularly for the digital goods and services. As a result, much of the current business on the Internet is funded using business models other than user-pays, primarily advertising and sponsorship. If a company is selling something, then they need to find a way to accept payment that is not only convenient for them, but most importantly, convenient for the customers.
Setting up a simple web site can be very inexpensive, but if you are unsure of how to go about creating one, a simple web site thus may not be so simple. And if you don’t know what you are doing, your site will definitely not be effective. A functional web site with online ordering requires expertise in four different areas. If a business owner does not have HTML, CGI scripting, ODBC, and special programs for online clearing options experience, they may want to consider outsourcing. Outsourcing is the use of a third party service company to provide the missing pieces to complete the total functionality of the business. This is a cost-effective way to allow a site to get up and running much faster and concentrate on the product or service rather than getting overwhelmed with the technical challenges. (DeCourey, 1999)
Finally, a possible disadvantage to E-commerce is not having a strong organizational commitment. A functional web site that is going to be successful will soon need additional resources in technology and skills. E-commerce is evolving at a very rapid rate and the business owner must be willing to evolve with it. Newer and more advanced technology will cost more, but should be supplemented by additional revenues. Also, the company must be willing to change the entire business or start a new one when they can see the need for change. “Yahoo started as a commercial operation in 1995, with a simple, if enormous, list of Web sites to help people navigate the Web. But like the Web itself, Yahoo is changing fast. The once amazing ability to search the entire World Wide Web became outdated in a Net instant, so Yahoo, at the tender age of two years, began reinventing itself as a place to trade stocks, make travel reservations, and conduct commerce.”(Hof, 1998)
The Future of E-commerce
Rest assured the future of E-commerce is intact and ever changing. “Like electricity, antibiotics, or the car, the Internet is a revolutionary technology.”(France, 1999) It is quite evident that E-commerce is only gaining speed. As one article stated, “The growth of E-commerce won’t diminish, it will become such a pervasive influence on how a company works that all functions within an organization will have a stake in their E-commerce strategy.”(Wareham, 2000) With Internet traffic doubling every 100 days the digital economy is alive and growing. The huge growth of virtual communities are causing shifts in economic power from large corporations to smaller businesses. “Virtual communities erode the marketing and sales advantages of large companies. A small company with a better product and better customer service can use these communities to challenge larger competitors–something it probably could not do in the real world.” (CommerceNet, 1999) With many of the technological advances in the banking, on-line trading and retail industries, E-commerce will soon become the foundation of our life just as radio, telephone and television have in the past.
Technology has a place in everyone’s day to day activities and soon E-commerce will be a major factor in the decisions we have to make. It is important to remember that E-commerce is more complex than just buying that special someone’s birthday present. E-commerce, along with the Internet, is an outlet for business. It is a way for the new guy to compete with the proven giants in the industry. An example of this would be the launch of Wal-Marts new web site intended to compete with industry monster Amazon.com.
Their new business venture allows Wal-Mart to go outside its usual corporate sphere for Web-savvy talent geared for dot.com commerce, such as engineers, programmers and marketers. “It also provides them with the necessary Web-wampum such as options, warrants and shares that is essential to attracting top talent.” (Veverka, 2000)
Simply put, the Internet and the use of E-commerce provides many opportunities for even the smallest of businesses to compete with large corporations, in essence leveling the playing field. With the steady growth of the Internet, and the fact that every year more and more families are plugging in and surfing the web, can a company survive without the use of the Internet and E-commerce? Probably, but not for long. The Internet and E-commerce are here to stay, so businesses can either change with the times, or get left behind. The choice is theirs to make.
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