Introduction to E-commerce

 Definition of E-commerce:
“E-commerce is a shift in business paradigm to seamlessly integrate the various business
processes through dissemination of real time information.”

 Other Definitions of E-commerce:

 E-commerce is business activities involving customers, manufacturers, service
providers, and intermediaries where business transactions take place over
communication network, especially the Internet.
 E-commerce is trading of products, information and services in which the final
order is placed over the Internet.
 E-commerce is web-based application that enables online transactions with
business partners, customers, and channels.
 E-commerce is defined as a modern business methodology that addresses the
desire of firms, consumers and management to cut costs while improving the
quality of goods and increasing the speed of services.

Buying
Selling Products
over COMPUTE
Marketing of Services E-
And Information R
comm
Servicing NETWORK

Users
Enterprise Internet, intranets, extranets
and other networks
Meaning of E-commerce

 Main Activities of E-commerce :

 Buying and selling of products
 Shipping of products
 Producing financial statements

 Technical Components of E-commerce :

 Client or PC workstation
 Transaction server
 Database server
 Database transaction
 Router and
 Internet communication line
 Architectural framework of electronic commerce :
Elements of the Electronic commerce framework
 Network Infrastructure
 Information and distribution technology
 Networked multimedia content publishing technology
 Security and encryption
 Payment services
 Business services infrastructure
 Public policy and legal infrastructure

E-commerce Applications
Catalog based retail, Marketing and Advertisement, Banking and
Investment, Supply chain management, Auctions, Home
Shopping, Procurements
XML, Java, Graphics, Video tools, etc.)
Publishing Technologies (HTML,
Network Multimedia Content
Messaging Technologies (HTTP, SMTP,

Legal and Public Policy Framework

Public Key, Identification and
Authentication, Infrastructure
Information Distribution and

Business Service Infrastructure

Directories, Search Engines, etc.

Secure Payment Protocols

Online Payment Infrastructure

Security and Encryption Technology

etc.)

Network Protocol Standards

Network Infrastructure (Internet)
 Fig : Architectural Framework for E-commerce

 Functions of E-commerce :
 Communication function
Aimed at the delivery of information and/or documents to facilitate business
transactions. E.g. e-mail.
 Process Management function
Covers automation and improvement of business processes E.g. Networking of
two computers so as to interchange data between the two.
 Service Management function
Application of technology to improve the quality of service E.g. Improving
customer services by launching improved websites.
 Transaction Capabilities
Provides the ability to buy/sell on the Internet or some other online service e.g.
Retail websites of Amazon.com

 Dimensions of E-commerce :
Three Dimensions of E-commerce are :
 The product or service sold ( physical/virtual)
 The process (physical/virtual)
 The delivery agent or intermediary (physical/virtual)

Pure E-commerce
Product

Process
Virtual Product
Virtual Process
Physical Product
Physical Process

Physical Virtual Delivery

Agent Agent Agent
Traditional Commerce

Fig : Three Dimensions of E-commerce

 Traditional (brick and mortar) commerce
o All dimensions are physical
 Pure e-commerce
o All dimensions are virtual
 Partial e-commerce
o All other possibilities include a mix of virtual and physical dimensions.

 Revenue Models:
A revenue model describes how the firm will earn revenue, produce profits, and produce a
superior return on invested capital.
Major Revenue Models:
 Advertising revenue model: A company provides a forum for advertisement and receives
fees from advertisers.
 Subscription revenue model: A company offers its users content or services and charges a
subscription fee for access to some or all of its offerings.
 Transaction fee revenue model: A company receives fee for enabling or executing a
transaction.
 Sales revenue model: A company derives revenue by selling goods, information, or
services.
 Affiliate revenue model: A company steers business to an affiliate and receives a referral
fee or percentage of the revenue from any resulting sales.
 Classifications of E-commerce by Transaction Nature :
 Business to Business (B2B) or Inter-organisational : Online business selling to other
business.
 Business to Consumer (B2C) or Retail : Online business selling to individual
customers.
 Consumer to Consumer (C2C) : Consumers selling to other consumers.
 Pear to Pear (P2P) : Use of peer to peer technology, which enables Internet users to
share files and computer resources directly without having to go through a central web
server, in e-commerce.
 M-commerce : Use of wireless digital devices to enable transactions on the web.

There are many acronyms that are similar to the transactions of B2B, B2C, etc.
 Consumer to Government (C2G)
  Government to Government (G2G)
 Business to Government (B2G)
 Business to Administration (B2A)
 Consumer to Administration (C2A)
 Major Business to Business (B2B) Business Models:
 Marketplace/Exchange (B2B hub): It is a digital electronic marketplace where
suppliers and commercial purchasers can conduct transactions. Eg. e-steel.com
 E-distributor: A company that supplies products and services directly to individual
businesses. Eg. Grainger.com
 B2B service provider: They sell business services to other firms. Employmatters.com
 Matchmaker: A company that makes money by linking other businesses and taking a
cut of any business that occur via a transaction or usage fee. Eg. Salesforce.com
 Infomediary: A company whose business model is premised upon gathering information
about consumers and selling it to other businesses. Eg. DoubleClick.net
 Major Business to Consumer (B2C) Business Models:
 Portal : It offers users , powerful Web search tools as well as an integrated package of
content and services all in one place. Eg. yahoo.com
 E-Tailer: It is an online retail store. Eg. amazon.com
 Content Provider: It distributes information content, such as digital news, music,
photos, video, and artwork over the Web. Eg. cnn.com
 Transaction Broker: It is a site that processes transactions for consumers that are
normally handled in person, by phone, or by mail. Eg. monster.com
 Market Creator: It builds a digital environment where buyers and sellers can meet,
display products, search for products, and establish a price for products. Eg.ebay.com
 Service provider: It offers services online. Eg. xDrive.com
 Community Provider: These sites that creates a digital online environment where
people with similar interests can transact (buy and sell goods), communicate with like-
minded people, and receive interest-related information. Eg. About.com
Electronic Market
A market is a network of interactions and relationships where information, products, services,
and payments are exchanged.

– The market handles all the necessary transactions.

– An electronic market is a place where shoppers and sellers meet electronically.
– Inandelectronic markets, sellers and buyers negotiate, submit bids, agree on an order,
finish the execution on- or off-line.

Shopper/Purchaser Electronic commerce

network Seller / Supplier
(Infrastructure)
1. Product/service
Information request
4. Purchase fulfillment
3. Purchase request
request
8. Payment or
5. Purchase change
payment advice
request

Electronic
Market
(Transaction 6. Response to
2. Response to Hander)
fulfillment request
information request 9. Shipping notice
7. Purchase
acknowledgment
10. Shipping notice
14. Purchase/service 13. Payment remittance notice
delivery (if online) 16. Electronic transfer of funds
18. Payment
acknowledgment
11. Payment authorization request
17. Electronic transfer of funds
12. Payment approval
15. Electronic transfer
of funds
Shopper/Purchaser’s Bank
Transaction Handler’s Bank Seller/Supplier’s Bank
(Automated Clearing House)

Electronic Markets
Network Basics
Definition : A collection of autonomous computers interconnected by a communication
network.
 Network Categories :
 LAN (Local Area Network): A LAN connects network devices over a relatively short
distance. A networked office building, school, or home usually contains a single LAN,
though sometimes one building will contain a few small LANs (perhaps one per room),
and occasionally a LAN will span a group of nearby buildings.
 MAN (Metropolitian Area Network): A network spanning a physical area larger than a
LAN but smaller than a WAN, such as a city. A MAN is typically owned an operated by
a single entity such as a government body or large corporation.
 WAN (Wide Area Network): A WAN is a geographically-dispersed collection of
LANs. A network device called a router connects LANs to a WAN.
 Wireless Local Area Network: A LAN based on WiFi wireless network technology.
 Network Structure:
Two types of designs for the communication subnets:
 Point - to - Point channels
 Broadcast channels

Possible topologies for Point-to -Point subnet

1. Star
A star network features a central connection point called a "hub" that may be a hub, switch or
router. Devices typically connect to the hub with Unshielded Twisted Pair (UTP) Ethernet.

Compared to the bus topology, a star network generally requires more cable, but a failure in any
star network cable will only take down one computer's network access and not the and not the
entire LAN. If the hub fails, however, the entire network also fails.

2. Ring

In a ring network, every device has exactly two neighbors for communication purposes. All
messages travel through a ring in the same direction (either "clockwise" or "counterclockwise").
A failure in any cable or device breaks the loop and can take down the entire network.

3. Tree

Tree topologies integrate multiple star topologies together onto a bus. In its simplest form, only
hub devices connect directly to the tree bus and each hub functions as the "root" of a tree of
devices. This bus/star hybrid approach supports future expandability of the network much better
than a bus (limited in the number of devices due to the broadcast traffic it generates) or a star
(limited by the number of hub connection points) alone.

4. Bus
Bus networks use a common backbone to connect all devices. A single cable, the backbone
functions as a shared communication medium that devices attach or tap into with an interface
connector. A device wanting to communicate with another device on the network sends a
broadcast message onto the wire that all other devices see, but only the intended recipient
actually accepts and processes the message.

5. Complete

A Complete network is a network in which every device connects to every other.

6. Irregular

A network which does not fall under any on the above topologies is said to be irregular network.
Communication subnets using broadcasting are:

1. Bus

2. Ring

3. Satellite or radio
 Protocol : It is a set of rules and procedures that govern transmission between the
components in a network.

 TCP/IP protocol :
The first form of Internet was ARPANET (a research network), which was started by the DoD
(US Department of Defense), which connected hundreds of universities and government
installations using leased telephone lines. With the advent of satellites and radio, the technology
that was used in this network became unable to cope. This gave to the birth of a new architecture,
which later came to be known as TCP/IP Reference Model, after its two primary protocols TCP
and IP. Though other models came after it, but still it is the most widely used protocol in the
present-day networks.
 TCP/IP Reference Model :
The TCP/IP reference model is shown in the diagram below.

APPLICATION

TRANSPORT

INTERNET

HOST TO
NETWORK
Fig : TCP/IP Reference model

There are four layers in this model. They are:

1. Host-to-Network: It is not properly defined. Concerned with physical network
connection.
2. Internet: The Internet layer defines an official packet format and protocol called IP
(Internet Protocol). The job of this layer is to deliver the IP packets to the correct
destination. So, packet routing is the major job of this layer.
 3. Transport: This layer is designed to allow the peer entities on the source and destination
hosts to carry on a conversation. There are two protocols defined for this layer- TCP and
UDP.
TCP (Transmission Control Protocol) is a connection-oriented protocol that allows a byte
stream originating on one machine to be delivered without error on any other machine in the
Internet. At the source, it fragments the incoming byte stream into discrete messages and
passes each one onto the network layer. At the destination, the receiving TCP process
reassembles the received messages into the output stream. The second protocol is UDP (User
Datagram Protocol) is an unreliable connectionless protocol for applications that do not want
TCP.
4. Application: The application layer contains all the higher protocols and applications s/w
like FTP, SMTP, TELNET, HTTP, DNS, which are required for various applications.
 Internet Protocol (IP) Address:
It is 32-bit address, which comprises of two parts. The network part and the host part.
 Classes of IP address: There are 5 classes of IP addresses. They are:

Class A 0 Network Host Host Host

Range: 1.0.0.0 to 127.255.255.255

Class B 10 Network Network Host Host

Range: 128.0.0.0 to 191.255.255.255

Class C 110 Network Network Network Host

Range: 192.0.0.0 to 223.255.255.255

Class D 1110 Multicast Address

Range: 224.0.0.0 to 239.255.255.255

Class E 11110 Reserved for future use

Range: 240.0.0.0 to 247.255.255.255

Database Concepts
 Database :
A database is a collection of logically related data. By data we mean known facts that can be
recorded and that have implicit meaning. Eg. text, image, sound, number, etc.
 Database Management System (DBMS):
A DBMS is a collection of programs that enables users to create and maintain a database. The
DBMS is a general purpose software system that facilities the processes of defining, construction
and manipulating databases for various applications. Defining a database involves specifying the
data types, structures and constraints for the data to be stored in the database. Constructing the
database is the process of storing the data itself on some storing units. Manipulating the database
involves the operations performed on the database.
 Data Model:
A data model is a set of concepts that can be used to describe the structure of a database. By
structure of a database, we mean the data types, relationships and constraints that should hold for
the data.
 Data Warehousing:
Definition:
A data warehouse is a database that collects business information from many sources in the
enterprise, covering all aspects of the company's processes, products and customers. The
warehouse provides business users with a multi-dimensional view of the data thy need to analyze
business conditions. It is a large electronic storage area that is structured so that the data stored in
divergent formats is converted to constant output, such as the same type of database.
The process of transforming raw data into a data warehouse involves several steps. They are:
i) Extraction: This step involves taking the data out of its original database and
transferring it to the data warehouse infrastructure. Companies often place restrictions on
what is extracted. For eg., the extraction process may occur everyday, so any changes to
the raw data sources older than 24 hours are ignored.
ii) Consolidation: It is the process of combining data from several sources into one
database. To get a complete view of a customer, a company may consolidate data from
order entry system, sales contact database and technical support databases.
iii) Filtering: Not every piece of data is needed, so, it has to be filtered. Filtering picks out
the relevant data and remove duplicates entries.
iv) Cleansing: The quality of an answer is only as good as the quality of the data used to
derive that answer, so it's important to cleanse the data to improve the accuracy of the
data in the warehouse. Eg. a single customer with multiple entries - John Jones, Jack
Jones and J. Jones. It requires some intelligence on the part of the cleansing software to
identify and correct such data.
v) Conversion: Conversion also called translation, means mapping of raw data onto new
data fields within the warehouse data model and translating the data into the format used
by the warehouse.
vi) Aggregation: Often the value of a data warehouse is in the summarized and derived data
it contains, opposed to the raw data stored in OLTP sources. The aggregation step sorts
and combines data into useful metrics for analysis.

RAW DATA

WAREHOUSE
GENERATION
S/W

QUERY &
METADATA
OPERATIONA REPORTING
RESPOSITORY
L DATA TOOLS
STORE

DATA
WAREHOUSE

DATA MARTS

Fig :Data Warehousing

Data Mart : A data mart is a specialized set of business information focusing on a particular
aspect of the enterprise such as department (HR) or business process (post sale support).
OLTP : Online Transaction Processing
Operational Data Store : It is a hybrid of an OLTP system and an analytical system. It contains
information that is frequently updated on an adhoc basis; often in response to changes in the
OLTP system.
 Advantages of Data Warehouse :
1. Extract data from multiple sources by reducing the work of the manager.
2. Offers clean data.
3. No danger of managers accidentally modifying production of data without permission.
 Disadvantages of Data Warehouse :
1. The software used in datawarehousing and the cost to set up and administer datawarehouse
are too expensive.
 Types of Data Warehousing :
There are different types of data warehouses, which can be used in combination or singly. They are :
1. Physical datawarehouse :
Actual physical database into which all the corporate data for the datawarehouse are gathered along with
the schemas (information about data) and the processing logic used to organize, package and preprocess
the data for end user access.
2. Logical datawarehouse :
 Contains all the metadata, business rules and processing logic required to scrub, organize,
package and preprocess the data.
 Contains the information required to find and access the actual data, wherever it actually resides.
3. Decision Support System :
These systems are not data warehouses but applications that make use of the datawarehouse. These are
also called Executive Information Systems (EIS).
4. Data Library :
 A subset of the enterprise wide data warehouse. It performs the role of a department, regional or
functional data warehouse.
 As part of the data warehouse process, the organization builds a series of data libraries over time
and eventually links them via an enterprise wide logical data warehouse.
Crucial Elements to have a Complete Data Warehouse :
 Backend (Accessing and organizing data easily from disparate sources)
 Preparing data for analysis (Querying, searching and governing the data)
 Front-end (Providing means for effective analysis of the information)
 Data Mining :
Stat Soft defines Data Mining as an analytic process designed to explore large amounts of data (especially
business or market related ) in search for consistent patterns and/or systematic relationships between
variables and then to validate the findings by applying the detected patterns to new subsets of data.
The process thus consists of three basic stages:
 Exploration
 Model Building or pattern definition and
 Validation or verification
It is becoming popular in business information management tool where it is expected to reveal knowledge
structures that can guide decisions in conditions of limited certainty.

DATA SEARCH FOR REVIEW REPORT

WAREHOUSE PATTERNS OUTPUT RESULTS
DATABASE
REVISE &
REFINE QUERY
Electronic Data Interchange (EDI)
EDI is the electronic exchange of business documents in a standard, computer-processable,
universally accepted format between trading partners.
Documents like purchase orders, invoices and remittance advice. EDI does not create any new
process or strategies; it simply expedites the existing business processes.
It compresses the timeline from initial order to shipment to final payment by sending actionable
information without the need for re-entry of information/ data at any stage along the way.
BUYER'S BUSINESS EDI TRANSACTIONS SELLER'S BUSINESS
APPLICATION APPLICATION
REQUEST FOR QUOTATION

QUOTATION

PURCHASE ORDER

PURCHASING PURCHASE ORDER ACK ORDER

PROCESSING
STATUS REQUEST/RESPONSE

SHIPPING NOTICE

INVOICE
ACCOUNTS ACCOUNTS
PAYABLE PAYMENT REMITTANCE NOTICE RECEIVABLE

EDI Basics :
EDI has three major components:
1. Trading partners : They are the Business Organizations involved in the process.
2. Translation software : It is a dual-purpose software. It converts files to or from an EDI format
called a 'document'. Document is known as an EDI message.
3. Communications : The transmission and reception of document between trading partners using
compatible hardware and software, which best suits their requirements. One option is VAN
(Value Added Networks).
A VAN is a third-party service provider that receives, stores and transmits data.
Other options :
Electronic Mail, Point-to-point communications, Internet and private TCP/IP, Intranet and
Extranet.
Financial EDI (FEDI) :
FEDI involves only the payment and payment related information (invoice) segment of
EDI. FEDI uses the banking industry to move payments globally and its own network
for payment related information.

Basics of Electronic Payment Systems

Electronic Payment system is also known as Electronic Transfer of Funds (EFT). EFT is defined
as "any transfer of funds initiated through an electronic terminal,telephonic instrument, or
computer or magnetic tape so as to order, instruct or authorize a financial institution to debit or
credit an account".
Electronic tokens are of three types. They are
 Pay-now/ cash/ real-time : Transactions are settled with the exchange of electronic currency. E.g.
e-cash/digicash
 Pre-paid/ Debit : Users pay in advance for the privilege of getting information. Examples of
prepaid payment mechanisms are stored in Smartcard and electronic purses or wallets that stores
electronic money.
 Post-paid : The server authenticates the customers and verifies with the bank that funds are
adequate before purchase. E.g. e-check/ netcheck, Credit/Debit card.
 Electronic Cash:
Electronic cash also known as e-cash or digital cash is the digital forms of value storage and value
exchange that have limited convertibility into other forms of value and require intermediaries to convert.
It is the first digital form of cash value.
Electronic cash must satisfy the buyer's concerns for privacy and security, independence, convenience,
portability, and divisibility. In turn, the seller should be satisfied that the electronic cash is not counterfeit,
nor being used in two different transactions simultaneously.
Eg: Digicash, Millicent, CyberCoin,Ecoins
 Electronic Wallet / Digital Wallet:
Electronic cash, like physical cash, needs a place to be stored. An electronic wallet stores electronic cash
as well as credit cards, owner identification, an address book, and perhaps emergency medical
information. It authenticates the consumer though the use of digital certificates or other encryption
methods, stores and transfers value and secures the payment process from the consumer to the merchant.
This system makes online shopping more efficient because a consumer does not have to repeatedly enter
their shipping and payment information with each transaction.
 Types of Digital Wallets:
1. Client based Wallets : Software applications that consumers install on their computers and that
offer consumer convenience by automatically filling out forms at online stores. Eg. Gastor and
Mastercard Wallet.
2. Server based Wallets : Software based authentication and payment services and products sold to
financial institutions that market the systems to merchant either directly or as part of their
financial service package. Eg. Microsoft Passport, Novell DigitalMe, CyberCash InstaBuy,
Yodlee.com
 Credit Card:
It represents an account that extends credit to consumers, permit to consumers to purchase items while
deferring payment, and allow consumers to make payments to multiple vendors at one time. Digital credit
card payment systems seek to extend the functionality of existing credit cards for use as online shopping
payment tool. Eg. Mastercard, Visa, eCharge Credit, Billpoint Online payments.
 Debit Card:
Debit card immediately debit a checking or other demand deposit account.
 Digital Check / e-check:
They are funds transferred directly via a signed draft or check from a consumer's checking account to a
merchant other individual.
Digital checking payment systems seek to extend the functionality of existing checking accounts for use
as online shopping payment tools. Eg. FSTC(Financial Services Technology Consortium) Electronic
Check, Mandate Electronic Check, netCheque.
 Smart Card :
Smart Card can be considered as a portable device that contains some non-volatile memory and a
microprocessor. This card contains some kind of an encrypted key that is compared to a secret key
contained on the user's processor. Some smart cards have provision to allow users to enter a personal
identification number (PIN) code. Eg. Mondex, American Express Blue
Three categories of smart cards are :
 A memory card that stores data. It needs an outside processor to access and work the data.
 An intelligent memory card, which contains besides data, some built-in logic, usually used to
control access to the memory of the card. They have data processing capabilities.
 A processor card with its own microprocessor and an operating system. These cards can process and
store data on their own.
Other two categories are :
 Contact smart cards, which are inserted into a reader and transfers data in reading.
 Contact-less smart cards, which transfers data via radio signals

GENERIC WEB PAYMENT EXAMPLE

BANK
6. PAYMENT
5. VALIDATE VALID
PAYMENT

3. ASK PAYMENT
CLIENT MERCHANT
4. SEND PAYMENT
WALLET SERVER

7. RECEIPT 2. ITEM 8. ITEM

REQUEST INFO.

1. GET ITEM
WWW WEBSITE
CLIENT 9. ITEM INFO.