Electronic commerce

Electronic commerce, commonly known as e-commerce or eCommerce, consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electronically has grown dramatically since the wide introduction of the Internet. A wide variety of commerce is conducted in this way, including things such as electronic funds transfer, supply chain management, internet marketing, online transaction processing, electronic data interchange (EDI), automated inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web, although it can encompass a wider range of technologies such as e-mail as well.

A small percentage of electronic commerce is conducted entirely electronically for "virtual" items such as access to premium content on a website, but most electronic commerce eventually involves physical items and their transportation in at least some way.

E-commerce became extremely popular shortly after its inception, with numerous entrepreneurs starting their own business more quickly and easily with only a computer instead of building a physical store. However, just like all retail business, there are many factors required for success. Thus, just as many failed. Although e-commerce is very attractive not only to the supplier but also to the consumer through its ultimate level of convenience, one's own home, it is also susceptible to cybercrime. Thus, many people are unwilling to trust an e-commerce business and the electronic payment methods used. The solution to this problem, however, cannot be found in better encryption methods and secure transactions, but in a change in the hearts of human beings such that they no longer live self-centered lives putting the greatest value on material goods but rather recognize that true happiness comes from harmonious relationships with others. In such a society, e-commerce can find its place, supporting prosperity for all.

Overview

Electronic Commerce (also referred to as EC, e-commerce eCommerce or ecommerce) consists primarily of the distributing, buying, selling, marketing and servicing of products or services over electronic systems such as the Internet and other computer networks. In this sense, it is exactly analogous to a marketplace on the Internet.

The information technology industry might see it as an electronic business application aimed at commercial transactions; in this context, it can involve electronic funds transfer, supply chain management, e-marketing, online marketing, online transaction processing, electronic data interchange (EDI), automated inventory management systems, and automated data collection systems. Electronic commerce typically uses electronic communications technology of the World Wide Web, at some point in the transaction's lifecycle, although of course electronic commerce frequently depends on computer technologies other than the World Wide Web, such as databases, and e-mail, and on other non-computer technologies, such as transportation for physical goods sold via e-commerce.

History

Early signification

The meaning of the term "electronic commerce" has changed since its development in the late 1970s. Originally, "electronic commerce" meant the facilitation of commercial transactions electronically, usually using technology like Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT). Both were introduced in the late 1970s, for example, to send commercial documents like purchase orders or invoices electronically.

The 'electronic' or 'e' in e-commerce refers to the technology/systems; the 'commerce' refers to traditional business models. E-commerce is the complete set of processes that support commercial business activities on a network. In the 1970s and 1980s, this would also have involved information analysis. The growth and acceptance of credit cards, automated teller machines (ATM) and telephone banking in the 1980s were also forms of e-commerce. However, from the 1990s onwards, this would include enterprise resource planning systems (ERP), data mining and data warehousing. Perhaps the earliest example of many-to-many electronic commerce in physical goods was the Boston Computer Exchange, a marketplace for used computers, launched in 1982. The first online information marketplace, including online consulting, was likely the American Information Exchange, another pre-Internet online system, introduced in 1991.

Activities

In the dot com era, the term came to include activities more precisely termed "Web commerce"—the purchase of goods and services over the World Wide Web, usually with secure connections (HTTPS, a special server protocol that encrypts confidential ordering data for customer protection) with e-shopping carts and with electronic payment services, like credit card payment authorizations.

Today, it encompasses a very wide range of business activities and processes, from e-banking to offshore manufacturing to e-logistics. The ever growing dependence of modern industries on electronically enabled business processes gave impetus to the growth and development of supporting systems, including backend systems, applications and middleware. Examples are broadband and fiber-optic networks, supply-chain management software, customer relationship management software, inventory control systems and financial accounting software.

Web development

When the Web first became well-known among the general public in 1994, many journalists and pundits forecast that e-commerce would soon become a major economic sector. However, it took about four years for security protocols (like HTTPS) to become sufficiently developed and widely deployed. Subsequently, between 1998 and 2000, a substantial number of businesses in the United States and Western Europe developed rudimentary web sites.

Although a large number of "pure e-commerce" companies disappeared during the dot-com collapse in 2000 and 2001, many "brick-and-mortar" retailers recognized that such companies had identified valuable niche markets and began to add e-commerce capabilities to their Web sites. For example, after the collapse of online grocer Webvan, two traditional supermarket chains, Albertsons and Safeway, both started e-commerce subsidiaries through which consumers could order groceries online.

The emergence of e-commerce also significantly lowered barriers to entry in the selling of many types of goods; accordingly many small home-based proprietors are able to use the Internet to sell goods. Often, small sellers use online auction sites such as eBay, or sell via large corporate websites like Amazon.com, in order to take advantage of the exposure and setup convenience of such sites.

Success factors

In many cases, an e-commerce company will survive not only based on its product, but by having a competent management team, good post-sales services, well-organized business structure, network infrastructure, and a secured, well-designed website. A company that wants to succeed will have: convenience, easy access to data, and a wide selection.

Convenience

Online stores are usually available 24 hours a day, and many consumers have Internet access both at work and at home. A visit to a conventional retail store requires travel and must take place during business hours.

Searching or browsing an online catalog can be faster than browsing the aisles of a physical store. However, some consumers prefer interacting with people rather than computers (and vice versa), sometimes because they find computers hard to use. Not all online retailers have succeeded in making their sites easy to use or reliable.

In most cases, merchandise must be shipped to the consumer, introducing a significant delay and potentially uncertainty about whether or not the item was actually in stock at the time of purchase. Some stores offer the ability to buy online but pick up in a nearby store. Many stores give the consumer the delivery company's tracking number for their package when shipped, so they can check its status online and know exactly when it will arrive. For efficiency reasons, online stores generally do not ship products immediately upon receiving an order. Orders are only filled during warehouse operating hours, and there may be a delay of anywhere from a few minutes to a few days to a few weeks before in-stock items are actually packaged and shipped. Many retailers inform customers how long they can expect to wait before receiving a package, and whether or not they generally have a fulfillment backlog. A quick response time is sometimes an important factor in consumers' choice of merchant.

In the event of a problem with the item—it is not what the consumer ordered, or it is not what they expected—consumers are concerned with the ease with which they can return an item for the correct one or for a refund. Consumers may need to contact the retailer, arrange and pay for return shipping, and then wait for a replacement or refund. Some online companies have more generous return policies to compensate for the traditional advantage of physical stores. For example, some online retailers may include labels for free return shipping, not charge a restocking fee, in some cases even for returns which are not the result of merchant error.

Information and reviews

Online stores must describe products for sale with text, photos, and multimedia files, whereas in a physical retail store, the actual product and the manufacturer's packaging will be available for direct inspection (which might involve a test drive, fitting, or other experimentation).

Some online stores provide or link to supplemental product information, such as instructions, safety procedures, demonstrations, or manufacturer specifications. Some provide background information, advice, or how-to guides designed to help consumers decide which product to buy.

Some stores even allow customers to comment or rate their items. There are also dedicated review sites that host user reviews for different products.

In a conventional retail store, clerks are generally available to answer questions. Some online stores have real-time chat features, but most rely on e-mail or phone calls to handle customer questions.

Price and selection

One advantage of shopping online is being able to quickly seek out deals for items or services with many different vendors (though some local search engines do exist to help consumers locate products for sale in nearby stores). Search engines and online price comparison services can be used to look up sellers of a particular product or service.

Shoppers find a greater selection online in certain market segments (for example, computers and consumer electronics and in some cases lower prices. This is due to a relaxation of certain constraints, such as the size of a "brick-and-mortar" store, lower stocking costs (or none, if drop shipping is used), and lower staffing overhead.

Shipping costs (if applicable) reduce the price advantage of online merchandise, though depending on the jurisdiction, a lack of sales tax may compensate for this.

Shipping a small number of items, especially from another country, is much more expensive than making the larger shipments bricks-and-mortar retailers order. Some retailers (especially those selling small, high-value items like electronics) offer free shipping on sufficiently large orders.

Problems

Beyond the problems faced by all retail businesses, the e-commerce company faces a number of challenges specific to the delivery system.

Fraud and security concerns

Given the lack of ability to inspect merchandise before purchase, consumers are at higher risk of fraud on the part of the merchant than in a physical store. Merchants also risk fraudulent purchases using stolen credit cards or fraudulent repudiation of the online purchase. With a warehouse instead of a retail storefront, merchants face less risk from physical theft.

Secure Sockets Layer (SSL) encryption has generally solved the problem of credit card numbers being intercepted in transit between the consumer and the merchant. Identity theft is still a concern for consumers when hackers break into a merchant's web site and steal names, addresses and credit card numbers. A number of high-profile break-ins in the 2000s has prompted some U.S. states to require disclosure to consumers when this happens. Computer security has thus become a major concern for merchants and e-commerce service providers, who deploy countermeasures such as firewalls and anti-virus software to protect their networks.

Phishing is another danger, where consumers are fooled into thinking they are dealing with a reputable retailer, when they have actually been manipulated into feeding private information to a system operated by a malicious party. On the other hand, dealing with an automated system instead of a population of store clerks reduces the risk of employees stealing consumer information, or dumpster diving of paper receipts. Denial of service attacks are a minor risk for merchants, as are server and network outages.

Quality seals can be placed on the Shop webpage if it has undergone an independent assessment and meets all requirements of the company issuing the seal. The purpose of these seals is to increase the confidence of the online shoppers; the existence of many different seals, or seals unfamiliar to consumers, may foil this effort to a certain extent.

Privacy

Privacy of personal information is a significant issue for some consumers. Different legal jurisdictions have different laws concerning consumer privacy, and different levels of enforcement. Many consumers wish to avoid spam and telemarketing which could result from supplying contact information to an online merchant. In response, many merchants promise not to use consumer information for these purposes, or provide a mechanism to opt-out of such contacts.

Brick-and-mortar stores also collect consumer information. Some ask for address and phone number at checkout, though consumers may refuse to provide it. Many larger stores use the address information encoded on consumers' credit cards (often without their knowledge) to add them to a catalog mailing list. This information is obviously not accessible to the merchant when paying in cash.

Product suitability

Many successful purely virtual companies deal with digital products, (including information storage, retrieval, and modification), music, movies, office supplies, education, communication, software, photography, and financial transactions. Examples of this type of company include: Google, eBay, and Paypal. Other successful marketers such as use Drop shipping or Affiliate marketing techniques to facilitate transactions of tangible goods without maintaining real inventory. Examples include numerous sellers on eBay.

Virtual marketers can sell some non-digital products and services successfully. Such products generally have a high value-to-weight ratio, they may involve embarrassing purchases, they may typically go to people in remote locations, and they may have shut-ins as their typical purchasers. Items which can fit through a standard letterbox—such as music CDs, DVDs and books—are particularly suitable for a virtual marketer, and indeed Amazon.com, one of the few enduring dot-com companies, has historically concentrated on this field.

Products such as spare parts, both for consumer items like washing machines and for industrial equipment like centrifugal pumps, also seem good candidates for selling online. Retailers often need to order spare parts specially, since they typically do not stock them at consumer outlets—in such cases, e-commerce solutions in spares do not compete with retail stores, only with other ordering systems. A factor for success in this niche can consist of providing customers with exact, reliable information about which part number their particular version of a product needs, for example by providing parts lists keyed by serial number.

Products less suitable for e-commerce include products that have a low value-to-weight ratio, products that have a smell, taste, or touch component, products that need trial fittings—most notably clothing—and products where color integrity appears important. Nonetheless, Tesco.com has had success delivering groceries in the UK, and clothing sold through the Internet is big business in the United States. Also, the recycling program Cheapcycle sells goods over the internet, but avoids the low value-to-weight ratio problem by creating different groups for various regions, so that shipping costs remain low.

Acceptance

Consumers have accepted the e-commerce business model less readily than its proponents originally expected. Even in product categories suitable for e-commerce, electronic shopping has developed only slowly. Several reasons might account for the slow uptake, including:

• Concerns about security. Many people will not use credit cards over the Internet due to concerns about theft and credit card fraud.
• Lack of instant gratification with most e-purchases (non-digital purchases). Much of a consumer's reward for purchasing a product lies in the instant gratification of using and displaying that product. This reward does not exist when one's purchase does not arrive for days or weeks.
• The problem of access to web commerce, mainly for poor households and for developing countries. Low penetration rates of Internet access in some sectors greatly reduces the potential for e-commerce.
• The social aspect of shopping. Some people enjoy talking to sales staff, to other shoppers, or to their cohorts: this social reward side of retail therapy does not exist to the same extent in online shopping.
• Poorly designed, bug-infested e-Commerce web sites that frustrate online shoppers and drive them away.
• Inconsistent return policies among e-tailers or difficulties in exchange/return.

References

ISBN links support NWE through referral fees

• Abdalla, Abdalla Ahmed. International Protection of Intellectual Property Rights: In Light of the Expansion of Electronic Commerce. Trafford Publishing, 2006. ISBN 978-1412069632
• Barnes, Stewart. E-Commerce and V-Business. Butterworth-Heinemann, 2007. ISBN 978-0750664936
• Chaudhury, Abijit, and Jean-Pierre Kuilboer. E-Business and E-Commerce Infrastructure. McGraw-Hill, 2002. ISBN 0072478756
• Nissanoff, Daniel. FutureShop: How the New Auction Culture Will Revolutionize the Way We Buy, Sell and Get the Things We Really Want. The Penguin Press, 2006. ISBN 978-1594200779
• Schneider, Gary. Electronic Commerce. Course Technology, 2006. ISBN 978-1418837037
• Seybold, Pat. Customers.com: How to Create a Profitable Business Strategy for the Internet and Beyond. Crown Business Books, 2001 (original 1998). ISBN 978-0812930375

External links

All links retrieved February 13, 2024.

• Article from The Economist, one of the earliest surveys of Electronic Commerce
• "Business Models on the Web" – by Michael Rappa of North Carolina State University
• NetAcademy on Electronic Markets
• Practical eCommerce / Ecommerce News for small-to-midsized businesses
• Everything You Need To Create A Business Plan For Your eCommerce Store
• 60 Stats & Trends That Will Define The Future of E-Commerce

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