PROJECT REPORT

ON

E-COMMERCE
(FOR THE PARTIAL FULFILMENT OF BBA COURSE)

SUBMITTED TO : SUBMITTED BY:

MS. ISHU SAINI Monika Vidana

Assistant Professor BBA 6th SEMETER

PIT, Rajpura 190590090

MAHARAJA RANJIT SINGH PUNJAB TECHNICAL UNIVERSITY,

BATHINDA
 ACKNOWLEDGEMENT

express my deep sense of gratitude to our respected and learned guide,

Dr. Gurpreet Singh Director (Punjab Institute of Technology, Rajpura who

guided me to complete this project.

I am also thankful to Ms. Ishu Saini for her valuable help, guidance and

encouragement she has given me in completing this project. I am also

thankful to all the other faculty members and staff of our esteemed

institute for their kind cooperation and help.

Monika Vidana

190590090
 OBJECTIVES
The study of E-commerce is much broader than the current enthusiasm for home shopping
on the web. The objective behind the preparation of this project on “Ecommerce” is :

(i) To know the importance of E-commerce in Today’s environment.

(ii) To make readers aware of the role played by E-commerce in big organizations.
(iii) To make readers aware that E-commerce is a double edged sword. It is properly
used it can be a boon or a blessing, but if it is abused or misused it can also act
as a curse.
(iv) Informal business to business transaction using internet e-commerce.
(v) Consumer transactions with business or other members of public using internet
e-commerce.
 INDEX
S.No Topic Page No.

1 Basics and definitions 7-13

1.1 The term “E-Commerce”
1.2 Business models related to E-Commerce 13-16
1.3 Technical and economic challenges 16-23

2 Frameworks and architectures 23-25

2.1 Actors and stakeholders
2.2 Fundamental sales process 25-28
2.3 Technological elements 29-32
3 B2C business 33
3.1 The process model and its variants 33-45
3.2 The pricing challenge 45-46
3.3 The fulfilment challenge 46-47
3.4 B2C-business and CRM 47-48
3.5 B2C software systems 49-50

4 B2B business 51
4.1 The process model and its variants I was 52
4.2 B2B software systems 53-54

5 Impact of E-Commerce 63-67

5.1 Overall impacts of E-Commerce 66-76

6 Electronic payment 77-78

6.1 The payment challenge 78-83
6.2 E-Payment 83
References 84-86
1.1 THE TERM “E-COMMERCE”
1.1.1 E-Commerce
“Electronic commerce, commonly written as E-Commerce, is the trading in
products or services using computer networks, such as the Internet. Electronic
commerce draws on technologies such as mobile commerce, electronic funds
transfer, supply chain management, Internet marketing, online transaction
processing, electronic data interchange (EDI), inventory management systems,
and automated data collection systems. Modern electronic commerce typically
uses the World Wide Web for at least one part of the transaction’s life cycle,
although it may also use other technologies such as E-Mail.

E-Commerce businesses may employ some or all of the following:

• Online shopping websites for retail sales direct to consumers,

• Providing or participating in online marketplaces, which process third-
party business- to-consumer or consumer-to-consumer sales,
• Business-to-business buying and selling,
• Gathering and using demographic data through Web contacts and social
media,
• Business-to-business electronic data interchange,
• Marketing to prospective and established customers by E-Mail or fax
(for example, with newsletters),
• Engaging in pretail for launching new products and services.

Pretail (also referred to as pre-retail, or pre-commerce) is a sub-category of

E-Commerce and online retail for introducing new products, services, and
brands to market by pre- launching online, sometimes as reservations in
limited quantity before release, realization, or commercial availability. Pretail
includes pre-sale commerce, pre-order retailers, incubation marketplaces, and
crowdfunding communities.”
E-Business : “Electronic business, or E-Business, is the application of information and
communication technologies (ICT) in support of all the activities of business.
Commerce constitutes the exchange of products and services between businesses,
groups and individuals and can be seen as one of the essential activities of any
business. Electronic commerce focuses on the use of ICT to enable the external
activities and relationships of the business with individuals, groups and other
businesses or E-Business refers to business with help of Internet i.e. doing business
with the help of Internet network. The term <E-Business> was coined by IBM’s
marketing and Internet team in 1996.” (Wikipedia 2015)

Comparing E-Commerce and E-Business we come to the subsequent conclusion:

E-Business is a more general term than E-Commerce. However, in this book we will only
use the term “E-Commerce“, because every business transaction finally is involved in
selling or buying of products or services. And the term “E-Commerce” obviously is more
widespread than the term “E-Business”.

Digital economy
“Digital economy refers to an economy that is (substantially) based on
computing technologies. The digital economy is also sometimes called the
Internet Economy, the New Economy, or Web Economy. Increasingly, the
“digital economy” is intertwined with the traditional economy making a clear
delineation harder.” (Wikipedia 2015)

We will not use the term “digital economy” further on in this book, because
business is business be it traditional or digital. And boundaries are moving every
day due to technical development. However, we will repeatedly use the term
“digital” or “digitalized” to indicate that subjects or activities are based on
ICT.

1.1.2 PRELIMINARY DEFINITION

Some authors write extremely enthusiastically like this: E-Commerce enables the
comprehensive digital execution of business processes between suppliers and
their customers via global public and private networks.
However, this definition rises some questions:

• What does “comprehensive” mean? Does it mean the total process? Is

everything digitalized?
• What about transportation and delivery of real goods? Obviously
 here are some limits for digitalization, though sooner or later 3-D-
printing may change a lot…
• Why should businesses be run electronically? Is enablement a value
in itself? Or do we digitalize businesses because we can reduce costs,
accelerate processes and increase profit?
•

This definition, though given in many E-Commerce books, is too much

marketing- minded and not helpful to understand the advantages (and
disadvantages) of “digitalized” business reasonably.
1.1.3 FINAL DEFINITION
To come to a final definition of E-Commerce let us start with some
constituent attributes of E-Commerce:

• Digitalization of business:
о This means a comprehensive usage of ICT (Information &
Communication Technology) not only within a business
organization (as it has been done during the last decades by
traditional (internal) information systems), but now through a more
and more seamless linking and cooperation of information and
communication systems of all involved business partners.
о The comprehensive usage of ICT has been enabled by some
technologies and technical standards, which have been accepted
globally (see chapter 2 of this book).
• Focus on business processes:
о We support business processes, of course, as we did it for the last
decades, but now the total processes, running through several
organizations and crossing their boundaries, are supported.
о We automate business processes not longer only within organizations,
as it was “the” traditional objective of ICT, but now the automation
is related to the total process, running through all involved
organizations, and not only to the sub-process within the own
organization.
о We increase the speed of business processes. Additional potentials
can be realized with the coupling of processes between different
organizations.
о We increase the economic efficiency of business processes, again
 through coupling of business processes at the boundaries of the
business partners.

• Usage of a global network:

о Internet plays a dominant role and has become a universal technical
infrastructure. Thus it builds a global virtual place where every
organization and person being interested in making business can
come together without geographical and time restrictions.
о Global networks allow the exchange of information without any
restrictions in time and independently from any geographical
distances.

о We “know” (means: assume) that the Internet is always up and running

(7·24h).
• New potentials and opportunities for cooperation:
о More or less independent persons and/or organizations work together.
о Business actors can come together whenever they want it or
whenever there is a need.

E-COMMERCE WITH THE “5-C-MODEL”

E-Commerce is the exchange of goods and services between (usually) independent
organizations and/or persons supported by a comprehensive usage of powerful ICT
systems and a globally standardized network infrastructure.

For this purpose the business partners have to couple their business processes and their
ICT systems. These systems have to work together temporarily and seamlessly and have
to share, exchange and process data during the whole business process and across the
boundaries of the cooperating organizations.

Data security and data privacy as well as the compliance with laws and other policies and
procedures have, of course, to be guaranteed.

Another approach to define and explain, what E-Commerce is, comes from the
so-called 5-C-model . It defines E-Commerce by five activity domains whose
denominations start with the letter “C”:

Commerce
• In the electronic marketplaces there is a matching of customers and
suppliers, an establishing of the transaction terms, and the facilitation
of exchange transactions.
• With the broad move to the Web-enabled enterprise systems with
 relatively uniform capabilities as compared to the legacy systems, a
universal supply-chain linkage has been created.

Collaboration
• The Web is a vast nexus, or network, of relationships among firms and
individuals.
• More or less formal collaborations are created or emerge on the Web to
bring together individuals engaged in knowledge work in a manner that
limits the constraints of space, time, national boundaries, and
organizational affiliation.

Communication
• As an interactive medium, the Web has given rise to a multiplicity of media
products.
• This universal medium has become a forum for self-expression (as in
blogs) and self-presentation (as, for an example, in Polyvore:
www.polyvore.com).
• The rapidly growing M-Commerce (see below) enables connectivity in
context, with location-sensitive products and advertising.
• In the communications domain, the Web also serves as a distribution
channel for digital products.

Connection
• Common software development platforms, many of them in the open-
source domain, enable a wide spectrum of firms to avail themselves of
the benefits of the already developed software, which is, moreover,
compatible with that of their trading and collaborating partners.
• The Internet, as a network of networks that is easy to join and out of
which it is relatively easy to carve out virtual private networks, is the
universal telecommunications network, now widely expanding in the
mobile domain.
Computation
• Internet infrastructure enables large-scale sharing of computational and
storage resources, thus leading to the implementation of the decades-
old idea of utility computing.

1.1.4 ADDITIONAL TERMS

M-Commerce (Mobile Commerce)
M-Commerce is commonly understood as the usage of mobile devices for
business purposes, especially mobile phones and PDA’s (Personal Digital
Assistants).

Main features of M-Commerce are:

• Location independence of (mobile) customers,
• High availability of services through well established mobile phone
networks,
• Increasing computing power of mobile devices,
• Interactivity of mobile devices (voice and data transfer),
• Security (when using mobile phone networks),
• Localization of customers through cell structure,
• Accessibility of customers,
• Potential of personalized services/offers.
E-Procurement (Electronic Procurement)
In general, E-Procurement is the automation of an organization’s procurement
processes using Web-based applications. It enables widely dispersed customers
and suppliers to interact and execute purchase transactions. Each step in the
procurement process is captured electronically, and all transaction data is routed
automatically, reducing time and cost of procurement. Properly deployed, E-
Procurement can deliver tremendous value to enterprises in different ways.

In a narrower sense E-Procurement is seen as the ordering of MRO goods (MRO

= Maintenance/Repair/Operations) on the basis of Web-based application
systems directly by the demand carrier to reduce process costs in the area of so-
called C-articles (C-articles represent a small portion of the total financial
procurement volume, but cause a significant portion of the procurement costs).
Every sales process at the same time is a procurement process or a buying
process – from the point of view of the (potential) customer. Sales processes are
driven by the supplier. Procurement processes are driven by the customer.
However the exchange of goods or services has to be managed. Thus we will
consider E-Procurement as a specific view onto E-Commerce.

E-Government (Electronic Government)

“E-Government (short for electronic government, also known as e-gov, Internet

government, digital government, online government, or connected government)
consists of the digital interactions between citizens and their government (C2G),
between governments and government agencies (G2G), between government
and citizens (G2C), between government and employees (G2E), and between
government and businesses/commerce (G2B).

This digital interaction includes all levels of government (city, state/province,

national, and international), governance, information and communication
technology (ICT), and business process re-engineering (BPR).”

E-Administration (Electronic Administration)

“E-administration refers to those mechanisms which convert the paper processes
in a traditional office into electronic processes, with the goal to create a
paperless office. Its objective is to get total transparency and accountability
within any organization.” (Wikipedia 2015)
E-Democracy (Electronic Democracy)
“E-Democracy incorporates 21st-century information and communications
technology to promote democracy. That means a form of government in
which all adult citizens are presumed to be eligible to participate equally in
the proposal, development, and creation of laws.” (Wikipedia 2015)

1.1.5 ROLE OF INTERNET

In the early years, E-Commerce was considered to be an aid to the business. In
the meantime it has become more or less a business enabler.
Between 1998 and 2000, a substantial number of businesses in the United
States and Western Europe developed rudimentary websites. In the dot-com
era, E-Commerce came to include activities more precisely termed ‘‘Web
commerce’’ – the purchase of goods and services over the World Wide Web,
usually with secure connections with E-Shopping carts and with electronic
payment services such as credit card payment authorizations.

The emergence of E-Commerce also significantly lowered barriers to entry

in the selling of many types of goods; many small home-based proprietors
are able to use the Internet to sell goods. Established suppliers had to close
their shops and to change their business model to an E-Commerce model to
stay profitable and in the business (e.g. travel agencies).

Often, small suppliers use online auction sites such as eBay or sell via large
corporate websites, to ensure that they are seen and visited by potential
customers.

1.2 BUSINESS MODELS RELATED TO E-COMMERCE

1.2.1 INTERNET BASED BUSINESS
In this chapter we list some typical business activities, which are based on the
Internet. E-Commerce actors cooperate with those firms and use them as
specific service providers.

Access provider
The access provider ensures (technical) access to the Internet. We should have in
mind, that somebody has to pay the access provider so that we can get
access to the Internet. Who pays? We or somebody else? In many (most?)
areas of the world it is a totally privatized business, though sometimes in the
political arena the access to the Internet is declared as a modern human
right. Obviously there is a similarity to telephone network(s). However, it
(normally) works in this privatized form.

Traditional business models, which are somehow similar to the business of an

access provider, are operators of a technical infrastructure, e.g. telephone
networks, car highways, or railways.

Search engine
Search engines are the most used software in the Internet. They are the
starting step for many Internet-based activities, not only but, of course, also
if somebody is looking for a business opportunity. Again we must ask: Who
pays? The one, who wants to find something or someone? Or the one, who
wants to be found?

A traditional and similar business model is given by the so-called “yellow

pages”, where firms are listed and grouped according to branches and
locations.

Online shop
An online shop is a website, where you can buy products or services, e.g.
books or office supplies.

Traditional and similar business models are direct mail selling (no shop
facility, offering of goods via a printed catalogue, ordering by letters or
telephone calls) and factory outlets (producer has own shop facility, does not
sell his products via merchants).

Content provider
Content providers offer content, a completely digital good, e.g. information,
news, documents, music. A specific variant of a content provider is the
information broker, who is a trader of information.

Again the following question has to be put: Who pays? The one, who wants to
have access to an information? The one, who wants to provide an
information?

Traditional business models in this area are newspaper publishers, magazine

publishers, radio and television broadcasting services or publishing companies.
Portal
A portal is a website, which provides a set of services to the user so that he/she
sometimes thinks that he/she is using a single but very complex software
system. Portals are often used in big organizations to control the access of
employees to the different ICT systems; each employee gets a specific menu of
“his”/“her” applications. Also content providers use portals, though in the
narrow sense that they only deliver content and no application systems.
Online marketplace/electronic mall
An online marketplace is a website, where suppliers and potential customers can
come together like on a real marketplace in a small town. An E-Mall is a
set of online shops, which can be found on one website.

Examples of traditional and similar business models are shopping centers,

omnibus orders (One person is customer of the shop and buys for a group
of people), marketplaces and buying associations.

Virtual community
A virtual community is a platform for communication and exchange of
experience. It is similar to a virtual club or association. We always should
ask: Who is the owner? Who is the person or organization behind the
platform? Who pays? The members or the visitors? The community operator?

Information broker
An information broker collects, aggregates and provides information, e.g.
information with respect to products, prices, availabilities or market data,
economical data, technical information.

Here we have to ask: Can we trust the information? Is it neutral or just a product
placement? Who pays? The visitor? Some providers? Financed through
advertisements?

Traditional and similar business models are magazines running tests of

computers, cars, consumer goods, restaurants.

Transaction broker
A transaction broker is a person or an organization to execute sales transactions.
Sometimes those brokers are used to hide the real customer to the supplier. A
transaction broker is an agent who is an expert in a specific area and can take
over parts of a business.

A similar traditional business model is the free salesman.

Online service provider/cloud service provider (CSP)
An online service provider provides services, which can be run electronically,
e.g. application software services or ICT infrastructure services like storage or
backup services. If this organization uses so-called cloud technologies it is
called a cloud service provider.
The questions, which we have to put, are: Who pays? The service user? If
not, who is the customer?

1.2.2 ADVANTAGES AND DISADVANTAGES

E-Commerce has a lot of advantages. But as we know it from every area of
our life, there is “no free lunch”. Of course, E-Commerce has some
disadvantages (see tables 1 and 2).

Advantages
…for the customer …for the provider
• Flexible shopping hours • Better customer service can
(7∙24h) be offered
• No waiting queues (if net is • Fast communication with
available and software customer
appropriately designed) • New customer potential
• Shopping at home (we don’t through global visibility
have to leave our apartment, • No (traditional)
refuel our car or buy a intermediaries, who take
subway ticket, look for a away margins
parking place, etc.)
• Individual needs can be
covered (if customization is
offered)
• Global offers, more
competition, pressure on
prices

Table 1: Advantages of E-Commerce

 Disadvantages
…for the customer … for the provider
• Security risks: • Higher logistics cost
о Data theft (e.g. stealing (goods have to be sent to
account or credit card the customer’s location)
numbers) • Anonymity of customers
о Identity theft (acting (how to make targeted
under our name or user advertisements?)
identity)
о Abuse (e.g. third person
orders goods with our
identity, gets them
delivered and we have to
pay for it)

• Crime:
о Bogus firm (firm does not
really exist) о Fraud (e.g.
order is confirmed, invoice has
to be paid, but goods are
never
delivered)

• Uncertain legal status (if

something goes wrong, can
 we accuse the provider?)

Table 2: Disadvantages of E-Commerce

1.2.3 WEB 2.0
Web 2.0 (Chen & Vargo 2014) describes World Wide Web sites that emphasize
user- generated content, usability, and interoperability. Although Web 2.0
suggests a new version of the World Wide Web, it does not refer to an
update of any technical specification, but rather to cumulative changes in the
way Web pages are made and used.

Characteristic application types of Web 2.0 are

• Blogs: A blog (a truncation of the expression weblog) is a discussion or

informational site published on the World Wide Web and consisting of
discrete entries (“posts”) typically displayed in reverse chronological
order (the most recent post appears first). We normally see “multi-author
blogs” (MABs) with posts written by large numbers of authors and
professionally edited. MABs from newspapers, other media outlets,
universities, think tanks, advocacy groups and similar institutions
account for an increasing quantity of blog traffic. The rise of Twitter and
other “micro-blogging” systems helps integrate MABs and single-
author blogs into societal news streams.
• Social networking services: A social networking service (also social
networking site or SNS) is a platform to build social networks or social
relations among people who share similar interests, activities,
backgrounds or real-life connections. A SNS consists of a representation
of each user (often a profile), his or her social links, and a variety of
additional services such as career services. SNS’s are Web-based
services that allow individuals to create a public profile, create a list
of users with whom to share connections, and view and cross the
connections within the system. Most SNS’s provide means for users to
interact over the Internet, such as E-Mail and instant messaging. SNS’s
incorporate new information and communication tools such as mobile
connectivity, photo/video/sharing and blogging.
• Online communities: An online community is a virtual community
whose members interact with each other primarily via the Internet.
Those who wish to be a part of an online community usually have to
become a member via a specific site and necessarily need an Internet
connection. An online community can act as an information system
where members can post, comment on discussions, give advice or
 collaborate. Commonly, people communicate through SNS’s, chat
rooms, forums, E-Mail lists and discussion boards. People may also join
online communities through video games, blogs and virtual worlds.
• Forums/Bulletin boards: An Internet forum, or message board, is an
online discussion site where people can hold conversations in the form of
posted messages. They differ from chat rooms in that messages are often
longer than one line of text, and are at least temporarily archived. Also,
depending on the access level of a user or the forum set-up, a posted
message might need to be approved by a moderator before it becomes
visible.
• Content aggregators: An aggregator is a website or computer software that
aggregates a specific type of information from multiple online sources.

If business wants to benefit from Web 2.0 then it has to proceed in a specific
way which in many aspects differs from the traditional Web based business. The
differences and conformities between the Web 1.0 (“old”) and the Web 2.0
world (“new”) are listed in table 3.

Area Old (Web 1.0) New (Web 2.0)

Business philosophy IT enabled IT enabled
relationship relationship
marketing marketing
Technology base Web 1.0 technology Web 2.0
(static pages, file technology/ Social
system, technology (user-
communication via E- generated content,
Mail separated from usability,
website) interoperability)
Digital part of Transaction based: one- Interaction based:
business processes to-one interaction dynamic, many-to-
many interaction
Interaction place Defined channels: E-Mail, Dynamic customer-driven
phone calls, websites, touch- points realized in
stores, etc. social media
Segmentation of Traditional demographics Dynamic, flexible and
users and temporary segmentation if
participants at all
Broadcast message Push-based, inside-out Pull-based, outside-in
flow
 Control Firms and established Social customers
organizations
Design/analysis scope Internal focus: one (part Value chain through
of an) organization total organization or
group of
organizations
Data store 360° customer transaction All interactions or
data conversations across all
touch points; user
contributed contents
Data analysis Subject-oriented analysis Network analysis
Metrics Transaction based: Interaction based:
Customer life-time value Customer referral value
(CLV), share of market, RFM (CRV), share of voice,
analysis measures (RFM = size and engagement of
Recency, Frequency, communities, sentiment
Monetary)
Viral marketing Not possible Can easily develop a
(information is viral marketing
spread like a campaign
virus)
Crowd sourcing Not possible Integral part of SCRM
strategy (SCRM = social
media CRM)
Customer loyalty Static, repeated patronage Dynamic, eWoM
(electronic Word of
Mouth), advocacy

Table 3: Comparison of Web 1.0 and Web 2.0

In the Web-2.0-world the traditional goods-dominant logic is replaced by a
service-dominant logic. Its premises are:

• Service is the fundamental basis of exchange.

• Indirect exchange masks the fundamental basis of exchange.
• Operant resources are the fundamental source of competitive advantage.
• Goods are a distribution mechanism for service provision.
• All economies are service economies.
• The customer is always a co-creator of value.
• The enterprise cannot value, but only offers value propositions.
 • A service-centred view is inherently customer-oriented and relational.
• All social and economic actors are resource integrators.
• Value is always uniquely defined by the beneficiary.
If an enterprise wants to be successful in the Web-2.0-world it has to move
from a goods focus to a service focus. How can this be managed? The
following rules may help:

• Do not produce goods but assist customers in their own value-creation

processes.
• Value is not created and sold but value is co-created with customers
and other value-creation partners.
• Do not consider customers as isolated entities, but in the context of their own
networks.
• Resources are not primarily tangible such as natural resources but
usually intangible such as knowledge and skills.
• Shift from thinking of customers as targets to thinking of customers as
resources.
• Shift from making efficiency primary to increasing efficiency through
effectiveness.

Obviously there is a strong focus on the customer and customer satisfaction as

it should be in every business. But what is really new? Is there finally a
significant difference between traditional business, Web 1.0 business and Web
2.0 business? We are not sure.

1.3 TECHNICAL AND ECONOMIC CHALLENGES

1.3.1 TECHNICAL CHALLENGES
ICT systems have to work properly not only within the boundaries of the own
organization but also in combination with ICT systems of other organizations.
Interfaces between the involved systems have to be defined and documented
properly. But: How heterogeneous are the involved ICT systems allowed to
be? Is our IT infrastructure fit for E-Commerce? How do we have to change
or extend our application systems for E-Commerce?

In the digital business ICT systems are mission critical assets. How do we
have to protect an ICT system so that it is not possible to destroy it,
damage it or manipulate it? Are our ICT systems secure? Are unauthorized
persons able to get access to our systems? Are payment procedures secure
enough? Can we protect the personal data of involved people, especially
customer data?

Finally we have to realize, that E-Commerce depends on people. Are the

people of our IT organization qualified enough? Can we provide the necessary
and significantly high technical support?
1.3.2 ECONOMIC CHALLENGES
E-Commerce is not only a matter of technology. It is primarily, because it
is commerce, a matter of management and organization. The following
questions have to be answered:

• Are our business processes standardized enough – at least

harmonized among the participants?
• Who is allowed to participate? Are all participants trustworthy? Who
makes the decision which person or organization is allowed to
participate?
• How much E-Commerce do we need to keep competitive? How do
we have to change our business model?
• What is going to happen after opening a new (electronic) sales channel?
Will traditional sales channels suffer from it?
• How can we measure the success of our E-Commerce activities? Will
costs be compensated through revenues? Will we make profit?
• How do we have to develop our relationship with customers, suppliers
and other business partners to be able to realize the advantages of E-
Commerce for our organization and avoid the disadvantages? How do
we have to develop and change our business relationships?
1.3.3 How do we have to redesign our business processes? How do the roles of
our employees change? Are our employees qualified for these new
roles?
2 FRAMEWORKS AND ARCHITECTURES

2.1 ACTORS AND STAKEHOLDERS

E-Commerce is driven by different groups of actors and stakeholders.

First we have persons, abbreviated by “C”, where “C” stands for (potential)
consumers or citizens, according to the specific context, which is to be
considered.
Secondly we have business organizations, abbreviated by “B”, where “B” stands
for producers and suppliers, trade organisations or merchants, banks, insurance
companies or other financial service providers, logistics & transportation firms
or forwarding agencies and last but not least several intermediaries (making
business with and on the Internet).

Thirdly we have governmental authorities, abbreviated by “G” or “A”, where

“A” stands for administration and “G” stands for Government. This category
includes local authorities, e.g. on town level or on county level, national
authorities, e.g. on state level or on federation level (United states of…), and
international authorities like European Union, United Nations, etc.

We also see political parties, lobby organizations, press and media, non-
governmental organizations (NGO’s) like Greenpeace, Red Cross or Olympic
committee, churches and other religious organizations, sports and other
associations. There is no specific abbreviation for this group of stakeholders.
According to the specific nature of the interacting partners we talk about “X2Y
business” where X and Y belong to the above-mentioned categories. We only
talk about X2Y business if there is an interchange of goods or services and
money. The supplier provides goods or services, the customer, be it a consumer
or another business, has to forward an appropriate amount of money to the
supplier. This is done on the base of a contract (be it a written or an oral
contract).

There are typically mentioned relationships (see figure 1):

• C2C: “Consumer to Consumer”, considered as a part of B2C business here,

• B2C: “Business to Consumer” (see chapter 3 of this book),
• B2B: “Business to Business” (see chapter 4 of this book),
• G2C: “Government to Citizen”, part of E-Government (not considered in this
book),
• G2B: “Government to Business”, part of E-Government (not considered in this
book),
• G2G: “Government to Government”, part of E-Government (not
considered in this book).

If you are interested in E-Government, see Rodríguez-Bolívar 2014 and Boughzala et

al 2015.
 Figure 1: Business Relationships (B = Business; C = Customer/Citizen; G
= Government)
However this is a somehow artificial pattern. Doing business can be mainly
considered via two questions:

• Who is the initiator or driver of the business transaction? If it is the

supplier, then this is under the focus of E-Commerce. If it is the
customer, then this is under the focus of E-Procurement.
• What is the nature of the transaction? If it is a temporary/one time
transaction, then this will be considered under the term “B2C
business”. If it is a permanent/an ongoing cooperation, then this will
be considered under the term “B2B business”.

2.2 FUNDAMENTAL SALES PROCESS

As we are discussing E-Commerce we have to know in detail what is going on
in E-Commerce transactions. Thus we have to consider the basic or fundamental
sales process. This process describes the general pattern of making business in
delivering goods or providing services and getting payments for this. Here we
can differentiate as we generally and due to Porter’s value chain do it in process
management between the primary or kernel process and a secondary or
supporting process.
1.2.1 PRIMARY PROCESS

Figure 2: The primary process

In general we will denominate the provider of goods or services as the supplier

and the receiver of goods or services as the customer. Sometimes third parties
are involved, e.g. shipping agents, which are denominated specifically.

The steps and sub-steps of the primary process, including the responsible
party (see figure 2), are:

• Information step:
о Search for products and services: by the customer,
о Search for potential suppliers: by the
customer, о Search for potential
customers: by the supplier, о
Communicate an offering: by the supplier,
о Communicate a need: by the customer,

• Initiation step:
о Get into contact: either by the customer or by the supplier,
о Request for delivery or service: by the customer,
о Offer for delivery or service: by the supplier,
о Assess supplier: by the customer,
о Assess customer: by the supplier,
• Contract conclusion step:
о Negotiate offer: by supplier and customer,
о Negotiate contract: by supplier and customer,
о Place order: by the customer,
о Confirm order: by the supplier,

• Delivery/fulfilment step:
о Proceeding for physical goods:
- Pack goods: by the supplier,
- Load goods: by the supplier,
- Ship goods: by the shipping agent,
- Unload goods: by the shipping agent,
- Unpack goods: by the customer or the shipping agent or
a specific service provider,
- Assemble complex equipment at the customer’s site: by the
shipping agent or a specific service provider,
- Accept delivery: by the customer,
- Approve contract fulfilment to authorize billing: by the customer,

о Proceeding for physical services:

- Build and maintain service fulfilment capability: by the supplier,
- Come together physically because customer must be an active
part in service delivery: by the supplier and the customer,
- Define service levels: by the supplier, possibly after a
negotiation with the customer,
- Add service level agreement to contract: by the supplier,
- Accept service fulfilment: by the customer,
- Approve contract fulfilment to authorize billing: by the customer,

о Proceeding for digital goods:

- Send goods to the customer via the net or provide for download: by the
supplier,
- Protect goods against unauthorized access (see chapter 6 of this
book): by the supplier,
- Accept delivery or confirm successful download: by the customer,
- Approve contract fulfilment to authorize billing: by the customer,
о Proceeding for digital services:
- Provide service via the net: by the supplier,
- Define service levels: by the supplier, possibly after a
negotiation with the customer,
 - Add service level agreement to contract: by the supplier,
- Initiate service provision: by the customer,
- Accept service fulfilment: by the customer,
- Approve contract fulfilment to authorize billing: by the customer,

о Proceeding for information:

- Like digital goods,

• Billing/invoicing step:
о Generate invoice: by the supplier,
о Generate attachments to invoice (e.g. protocol of service fulfilment,
protocol of final customer’s approval, certificates, etc.): by the
supplier,
о Forward invoice to customer (via the Web or via postal services): by

the supplier, (Note: This step is sometimes conducted by the customer –

totally or partially.)

• Payment step:
о Get money from the customer (see chapter 7 of this book): by the
supplier or a financial services provider,

• Service/support step:
о Provide additional information for the customer (e.g. user manual,
technical documentation, etc.): by the supplier,
о Conduct customer support (e.g. recommendation for usage, FAQ, etc.):
by the supplier,
о Manage complaints: by the supplier,

о Repair: by the supplier or a specific service provider,

о Manage returns (if repair is necessary, a wrong product has been
delivered or customer wants to “roll back” the business): by the
supplier in cooperation with the customer,
о Conduct maintenance (may be part of the product or may be a
separate service offered by the supplier): by the supplier or a
specific service provider.
2.2.2 SECONDARY PROCESS
The secondary process (see figure 3) can be sub-divided into

• Internal process control,

• Communication to the customer:
о Tracking & tracing: by the supplier or the shipping agent,
о Inform about order processing status: by the supplier,

о Announce delivery time: by the supplier or the shipping agent.

Figure 3: The secondary process

2.3 TECHNOLOGICAL ELEMENTS
In this chapter we will discuss subjects IT people are talking about. Technology
is a major enabler of E-Commerce as we consider it here. Globally accepted
technological standards have been and still are a prerequisite and a driver of
global electronic business. Here we will follow a technology model with four
layers (see figure 4). This model (Merz 2002, p. 36) is not satisfactory from a
scientific point of view, but it gives a heuristic and pragmatic orientation. The
subsequent short descriptions are mostly taken from Wikipedia.
 Figure 4: Technologies for E-Commerce

2.3.1 MIDDLEWARE
Middleware consists of technologies building the link between hardware and
application software. The boundaries between middleware and hardware as well
as between middleware and application software are changing over time due to
the technological development. Middleware normally is a category of general
and not application specific software. In general there is a trend to replace
hardware functionality by middleware thus allowing the usage of highly
standardized hardware components which can be provided at low cost.
CORBA (Common Object Request Broker Architecture)
CORBA is a standard defined by the Object Management Group (OMG)
designed to facilitate the communication of (software) systems that are
deployed on diverse platforms. CORBA enables collaboration between systems
on different operating systems, programming languages, and computing
hardware. The CORBA specification dictates there shall be an ORB (Object
Request Broker) through which an application would interact with other
objects.
Java Native Interface (JNI) is an alternative to CORBA. It is a programming
framework that enables Java code running in a Java Virtual Machine (JVM) to
call and be called by native applications (programs specific to a hardware and
operating system platform) and libraries written in other languages such as C,
C++ and assembly. However, there is a significant disadvantage: An application
that relies on JNI loses the platform portability Java offers.

Database systems
In a business environment we often use a relational database system, which
is optimally suited to store and process structured data as we find it in
typical business transactions.
Typical examples for structured data are:

• Address data,
• Orders,
• Shipping documents,
• Invoices,
• Tax declarations.

Together with the growing usage of unstructured data (text documents, graphical
information, multi media data) new types of databases become relevant for
business purposes: NoSQL databases (Not only SQL) and XML databases.

Directory services
We need directory services for the following purposes:

• Address lists,
• User management: A common usage of a directory service is to
provide a “single sign on” where one password for a user is shared
between many services, such as applying a company login code to Web
pages (so that staff log in only once to company computers, and then are
automatically logged into the company intranet),
• Authentication.

There are two standards widespread used:

• LDAP (Lightweight Directory Access Protocol) is an open, vendor-

neutral, industry standard application protocol for accessing and
maintaining distributed directory information services over an Internet
 Protocol (IP) network. LDAP is documented in RFC 4510 and RFC
4511. It has become the de-facto-standard in industry for authentication,
authorization as well as user and address management. LDAP is
based on a subset of the standards contained within the X.500
standard. Because of this relationship, LDAP is sometimes called
X.500-lite.
• X.500 is a series of computer networking standards covering electronic
directory services. These directory services were developed in order to
support the requirements of X.400 electronic mail exchange and name
lookup. However, X.500 is too complex to support on desktops and over
the Internet, so LDAP was created to provide this service ‘for the rest of
us’.
Webserver
A Webserver is a virtual computer (a piece of software), which helps to deliver
Web content that can be accessed through the Internet.

Well-known products are:

• Apache HTTP Server,

• Microsoft Internet Information Services (IIS).

WSDL (Web Services Description Language)

The actual version is WSDL 2.0 (2007). WSDL has been developed by W3C
(World Wide Web Consortium).

WSDL is an XML-based interface definition language that is used for describing

the functionality offered by a Web service. WSDL describes services as
collections of network endpoints, or ports. The abstract definitions of ports and
messages are separated from their concrete use or instance, allowing the reuse of
these definitions. WSDL is often used in combination with SOAP and an XML
Schema to provide Web services over the Internet.

SOAP (Simple Object Access Protocol)

SOAP is a protocol specification for exchanging structured information in the
implementation of Web services in computer networks. It uses XML
Information Set for its message format, and relies on other application layer
protocols, most notably HTTP or SMTP, for message negotiation and
transmission.
2.3.2 TYPICAL APPLICATIONS
As a basis for subsequent considerations we will draft a general software
architecture for the E-Commerce area (see figure 5).

Figure 5: Software architecture

In this architecture three elements have interfaces between supplier and customer:

• Procurement platform (driven by customer): 1 customer, n suppliers (n >

1),
• Online shop (driven by supplier): 1 supplier, m customers (m > 1),
• Marketplace (driven by third party): n suppliers, m customers (n >1,
m > 1; third party may be a supplier).
 3 B2C BUSINESS

3.1 THE PROCESS MODEL AND ITS VARIANTS

In the B2C business (see Xu 2014, pp. 77–96; B2C = Business to
Customer) normally the selling partner is a business organization, but this is not
a Must. Normally the buying partner is a single person, but this also is not a
Must. So B2C is a synonym for the selling process considered from the point
of view of the supplier.

3.1.1 BUYING VIA INTERNET

First let us naively consider what is going on if we buy something via the
Internet. The process starts, when the customer generates an order via an
online shop. The order is processed in the backend ERP system(s) as a sales
order and all ordered products and components are verified. If products are
available in the quantity, which the customer has ordered, products can be
delivered to the customer’s location, and at that point of time, which is
convenient for the customer.

After that verification the processing of the order continues in preparing that
order for packing and shipping and also preparing it for billing. The customer
gets an acknowledgement of his order. Customer and order data are available
via a portal solution to all stakeholders.

But is E-Commerce really so simple? A series of questions arises:

• How did the customer find the “right” online shop?

• Is the order legally binding?
• Is the customer allowed to change his order ex post?
• How is the consignment processed through the provider?
• Do processes differ between producers and traders?
• Does the trader have the ordered goods in his warehouse or does he
himself send a corresponding order to the producer?
• What happens if the ordered goods and services cannot be delivered?
• How are the goods provided?
• Can the customer pick up the ordered goods by himself?
• Where can the customer pick up the ordered goods?
 • How is it ensured that the customer or a representative of the
customer is on site when goods are delivered?

• How does the customer have to pay?

• What is going on in the case of a customer complaint?
• What is going on in the case that the customer does not accept the
delivered goods and that a return shipment has to be initiated?

3.1.2 VARIANTS OF THE PROCESS

Obviously is the Internet based selling process more complex than it looks like at
the first impression. Thus we will discuss the process steps in more detail.
Information step
How does the process start? The first variant is, that the customer becomes
active. Even here we have to differentiate because the starting point may be
different:

• Product/service is clear, the supplier has already been selected,

• Product/service is clear; the supplier has not yet been selected,
• Product/service has to be determined.

The customer may enter the process via search engines, marketplaces/multi-
shops, communities, rating platforms or known providers respectively their
websites or online shops. Within those entry paths some questions arise:

• Who pays the information provider, if the process is started via online
communities, rating platforms or search engines? Normally the
customer does not pay for those services.
• Who is owner of the information sources? Rating platforms for product
and price comparison are often operated and owned by publishing
companies. Online communities are many a time established and
administered by providers or lobby organizations.
• Who benefits?
• And finally: How does the payer, if it is not the customer, restrict or
filter the information, which is forwarded to the customer?
The result of this step will be, that

• the customer identifies relevant products/services,

• the customer identifies relevant providers,
• the customer conducts a pre-selection or
• the customer makes his final decision.

The second variant of the information step is, that the supplier initiates it. Here
we can differentiate, whether the customer is already known to the supplier or
not. If the customer is already known then the process may be initiated via a
specific contact or a general information (relationship management) or a specific
offering (1:1-marketing/personalization). If the customer is not yet known to
the supplier then he will try to call the customer’s attention via supplier
communities/marketplaces/multi-shops, via online communities, via banner
advertising or via “adwords” (intelligent small ads). Advertisements are placed
in search engines or websites of public interest. Sometimes sports and other
associations take advertisements to fund their website or organization.
If the supplier wants to appeal to the customer specifically then he should have
appropriate customer profiles. Those profiles are a valuable asset and contain
information about properties/ preferences/behaviours. This information may
either be provided by the customer voluntarily or extracted from former
behaviour of the customer (automatically) through analysing his visits,
communication and transactions.

This generation of customer profiles can be done by each single supplier or by

an aggregation of data collected by several suppliers. The latter can be an
independent business. However, legal restrictions with respect to data privacy
have to be followed.

There are several approaches or tools to collect customer data.

Cookies are tokens or short packets of data passed between communicating

programs, where the data is typically not meaningful to the recipient program.
The contents are opaque and not usually interpreted until the recipient passes
the cookie data back to the sender or perhaps another program at a later time.
Cookies allow detailed access statistics. However, the user must be able to
switch cookies off (due to definition of IETF).
 Profiles are explicitly provided by the customer. Profiles can also be
deduced from the customer’s behaviour (see chapter 8 of this book):

• Duration and course of session,

• Transaction data,
• Hits (HTTP access),
• Page Impressions,
• Click Streams,
• AdClicks,
• Content of shopping baskets,
• Dispatched queries.

Profile information is aggregated in data warehouses and analysed with methods

from OLAP (Online Analytical Processing) and data mining.
E-Commerce is based on technology. This technology allows a 1:1-marketing
which means that marketing activities can be focused on one specific customer.
With the help of data processing capabilities potential customers can be
identified through combination of:

• Given profile data whether they are provided directly by the customer
or deduced from data, which have been provided by the customer in
different environments,
• Credit-worthiness information (from banks or financial service provides),
• Address data (from online communities or electronic telephone directories),
• Demographic data (age, sex, marital status, profession; from online
communities or existing profiles),
• Geographic data (size and location of place of residence, type of flat or
house),
• Positive/negative attributes (e.g. from former transactions or from profile
data).

Recommendation Engines are software systems, which analyse what the

customer has purchased or checked. From this behaviour they make
conclusions what the customer could be interested in when he visits the online
shop for the next time. Good recommendation engines are learning systems. The
longer they monitor the customer the better do they predict the customer’s
wishes and interests.

Another approach to systematically build customer profiles is to run a CRM system

(Customer Relationship Management). Here a supplier puts together all
information about his customers and manages the resulting customer profiles.
Also online communities can be a place where customers allow deep insights into
their thinking, their preferences and their aversions. A lot of suppliers have
established such online communities where customers can become a member, get
privileged information, and can place their comments and judgements. Sometimes
those communities take a fee for the membership thus establishing an aura of
exclusivity.

The active identification and evaluation of customers has a downside: There is

not only a positive but also a negative selection. Organizations establish specific
rules like: You charge them higher fees because you don’t want them – make
them know they’re not welcome. Or: Unprofitable customers will pay an
additional price in terms of service. You answer the cash cows first.
Examples of these strategies can be easily found in banks, insurances or mail
order firms.

At the end of this step there is or should be a result:

• The customer has been identified.

• The customer request has been identified.
• A decision has been made, whether the customer will be served or not.
• It has been checked, that the requested product/service can be delivered.

In both variants of the information step product information is needed and has
to be presented to the (potential) customer. If standardized products and
services are offered then product information will be given via an online
catalogue. This catalogue contains:

• Technical specifications of each product,

• Configuration and variants,
• Prices/rebates/payment conditions,
• Delivery conditions.

Because online shops offer products of different suppliers, there should be a

common product data model in the industry. Indeed there are some general
data models available.
Initiation step
When customer and supplier at the end of the information step know that
they want to conduct a business transaction together, then they initiate it
according to the specific nature of the goods to be sold respectively bought.

If standardized products without individual offers are sold then an electronic

shopping cart is provided. The customer picks up interesting products or
services and puts them into his shopping cart. He removes products or services,
which are not interesting for him. The financial volume is always transparent
so that he knows at any time how much he would have to pay if he would
decide to buy the actual content of his shopping cart. The customer is able to
order or abort every time.

If goods or services have to be personalized then this is done via requests and
offers. The online shop has to provide an appropriate functionality to run this
dialogue between supplier and customer.

Contract conclusion step

At the end, both, the supplier as well as the customer, have to “sign” a
contract. Initially all relevant data have to be put together. The customer has
to be identified and his name and contact data have to be documented. Then
invoicing address, delivery address and payment data must be selected. If the
customer has previously bought from the supplier then these data may be
available in the supplier’s customer database or CRM system. However the
customer must be able to change or extend these data with every order. Then
specific order data like preferred delivery time and notification method have
to be registered. Of course, the shopping cart content is fixed with defining
the order.

The request of the customer to buy something from the supplier must be
answered by the supplier. He will run a solvency check either based on his own
customer profile data or (sometimes) by sending a request to a specific financial
information service provider. At the end he accepts or refuses the order and
sends a confirmation note to the customer. Normally the customer expects that
this is conducted within seconds or even parts of seconds but effort and
duration of such checks may depend on the ordered goods and the financial
volume of the order.
A severe problem for many online shops are the so-called junk orders, where
people order things just for fun and never plan to accept delivery and pay for the
delivered goods. Suppliers will try to find out whether there is a risk of junk
ordering by checking the previous behaviour of the customer. In the case of
digital goods the process may be designed such that the digital good can be
downloaded to the customer’s client, but not used until a specific key is
provided to the customer. This key will be sent to the user when the supplier is
sure that the customer has paid or will pay.

Delivery/fulfilment step
If real goods have been sold, then the contract between supplier and
customer is followed by the compilation of the ordered goods. If goods are
not in stock of the online shop they have to be ordered at the producer and
either they can be taken from the producer’s warehouse or they have to be
produced. When the ordered goods are available they must be consigned, packed
and forwarded to transportation. Now the delivery can be made directly to the
customer’s address or to a station, e.g. an authorized retail shop in the
customer’s neighborhood or to another home address if we are in an omnibus
buying where an “agent” orders for his friends, colleagues or neighbors.
At the end of the shipment the package with the ordered goods has to be
physically given to the customer. Because the customer is not always at home
or in his office, the delivery time must be coordinated. When this time has
come the shipping company will be on site and transfer the goods to the
customer. The customer then will confirm the delivery and that he has taken
over the goods into his responsibility.

Sometimes the delivery will not be possible. It may be that the customer is
not on site whether he has forgotten the delivery time or had to change his
schedule short term and was not able to inform the shipping agent. It may be
that the acceptance is refused, e.g. because of transport damages or the
delivery had been initiated by a junk order.

Depending to the nature of the ordered goods an installation or assembly will

be necessary at the customer’s site. If complex (technical) equipment is
delivered an instruction of the customer’s representative has to be conducted.
Finally old equipment has to be removed and packaging material has to be
disposed.
The process step is finished with a confirmation of the delivery by the customer.

If services have been ordered the process has to be modified. The reason is that
the customer is an active part of service production. The service production
equipment must be provided and be shipped to the location of service
delivery/service production. Also the time of service delivery must be
determined. The process step finishes again with a confirmation of the
service delivery.

If digital goods have been ordered they may be either documents or rights to use
something. Documents will often be delivered due to the push principle; the
ordered documents is sent to the customer. If a right has been sold then the
delivery mostly is conducted due to the pull principle; the customer has to
download software or a key or whatever he needs to realize the benefits of
his purchase. The transfer of the digital good to the customer is closed with a
proof of delivery. In the case of digital products the delivery process can be
completely digitalized and processed with the Internet.

Finally also in this variant the process step is finished with a confirmation of
delivery by the customer. This may be integrated into the proof of delivery.

Billing/invoicing step
After the confirmation of delivery the billing and invoicing step can be started.
If the customer had to pay before delivery then it may happen that the invoice
has to be corrected and a credit note (if the value of the delivered goods was
lower than the value of the originally ordered goods) or debit note (if the
value of the delivered goods was higher than the value of the originally
ordered goods) must be created. Customers do not like additional charges.
So the customer relationship management has to think of appropriate charging
strategies.

If the customer has not paid before delivery, then the ideal situation is the
identity of delivery and order. If there is a deviation from order an adjusted
invoice has to be created. Here we also have the problem of the customer’s
acceptance in case of higher invoice amounts.

The supplier should carefully consider the process and optimize it so that the
expected invoice total is exceeded only in very few cases.
Billing seems to be simple but of course it is not. Tax regulations have to be
followed. It also turns out that costs of paper invoices are alarmingly high
(paper, envelopes, stamps, processing cost). Also the run time of invoice
letters at postal services may be an issue. If the customer gets the invoice one
day later he will also pay one day later. If the supplier wants to create
electronic invoices he has to be sure that the lawfulness of electronic invoice is
given and he has to follow corresponding law requirements for (electronic)
invoices.

The receipt of payment depends on the agreed payment method (see chapter 7
of this book). If the payment is done after delivery and not in combination
with delivery then there may be a delay of payment and the supplier has to
initiate a corresponding dunning process to get his money. First he will send
friendly reminders to the customer, later-on dunning letters. If the customer does
not just yet pay then it comes to a lawsuit. After the lawsuit a compulsory
execution will be initiated to get the money from the customer with the help
of governmental authorities.

If the supplier wants to have no trouble with the payments he could change
to factoring. Here he will sell the debt claims to a third party and this third
party will take over the cashing. The supplier will get a (major) part of the
claimed amount immediately and does not have to wait for weeks or months.
This improves his solvency.

Finally there is a very good advice for getting your money from your
customers: Tell your customer that you have an effective cashing process –
and be consequent in running that process.
Sometimes the customer will get money back from you (credit voucher).
According to the selected payment method this can result in a money transfer
to the customer’s bank account, a cash payment to the customer or a back
posting on the customer’s credit card account.

Service/support step
To be successful in E-Commerce does not only depend on interesting
products, low prices and fast delivery. To generate a high customer
satisfaction presumes a professional service and support. There must be an
effective complaints management. Supplementary and replacement deliveries,
including return consignments, must be in place and run smoothly if needed.

The customer expects appropriate assembly support and installation help, of

course a good documentation, e.g. user manuals, FAQ options. If a repair of
a delivered component is necessary picking up and sending back of the
component to the supplier should be as easy as possible for the customer. It
may be that an on-site repair is the best alternative.

Return orders should be avoided, because it always leads to an expenditure of

time for the customer and also a financial effort of the customer. The
customer is strongly involved in the execution.
E-Commerce allows checking the customer’s satisfaction with each specific
transaction. This can be done but there is the risk that the customer feels stalked
by the supplier. Some enterprises exercise an approach where specific
transactions initiate an assessment of the supplier in general.

Of course each supplier should keep in contact with his customers and
each transaction should create information for the customer relationship
management. Clubs, forums or so- called customer advisory boards can help to
improve customer relationships. However this will only work successfully if
customer’s are considered as real partners. If the customers have the
impression that those clubs, forums or boards are not a platform for a
serious dialogue between supplier and customers then the effect of such
platforms may be worse than having no such platforms.

Customer relationship means communication with the customer. In the E-

Commerce world a great variety of communication channels is available:
 • Letters,
• E-Mails,
• Telephone calls,
• Electronic chat rooms.

The challenges for the supplier are availability of those channels and acceptable
response times.

Communication/tracking & tracing step

Customer and supplier want to monitor the order processing status. This
presumes a seamless and automated data capture during the total workflow, e.g.
by scanners or RFID technology (RFID = Radio Frequency identification).
RFID is the wireless use of electromagnetic fields to transfer data, for the
purposes of automatically identifying and tracking tags attached to objects. The
tags contain electronically stored information.

Prerequisites for this seamless tracking and tracing are the interconnectedness of all
actors,
e.g. sub-contractors, the harmonization of data structures and
communication protocols and the identification of goods to be conveyed.
3.1.3 E-PROCUREMENT
E-Procurement is a synonym for the selling process considered from the
point of view of the customer. It is similar to B2C, but now the buying
organization is the driver. This organization is the only customer and is
looking for many suppliers. Thus a procurement platform if we talk about IT
systems is somehow an inverse of an online shop.

3.2 THE PRICING CHALLENGE

3.2.1 PRICING STRATEGIES
The first pricing strategy (see Chen 2014) is that the supplier sets the prices for
his products. The customer makes a “take-it-or-leave-it” decision. In the E-
Commerce world this leads to lower prices and price dispersion. The problem
for the supplier is, that it is easy to reduce prices but it is extremely hard to
increase prices.

The second pricing strategy is the auction. Here we have a horizontal

competition among customers. The customer who offers the highest amount of
money gets the product. However, there is a difference to real-life auction if
we are in the digital world. There are different end of auction rules, hard
ending times and late minute bidding. The disadvantage for the customer is
that Internet auctions run without physical inspection of goods. Thus the
reputation of the supplier is a fundamental prerequisite for the trust of the
customer in such transactions.

The third pricing strategy is the individual negotiation between customer and
supplier.

3.2.2 REASONS OF PRICE DISPERSION

In the economic theory there is the law of one price. That means that in an ideal
market with identical and total information for every participant demand and
supply lead to a unique price for a specific product. But does this work in real
markets? Obviously not, which can easily found out by everybody of us. And
it is also true for markets in the Internet. What are the reasons for such price
dispersions?

First of all suppliers are not interested in ideal markets with total transparency
and full information for everybody. And they try to create the impression as if
they would offer a unique product or service as well as keeping competitors
on distance. The objective of the first approach is that the (potential)
customer stops his search process because he thinks that he has already found
the best offer. The objective of the second approach is to exclude competitors
from the competition, so that they are not able to offer something adequately
to the customer.
Further supplier strategies can be found easily:

• Frustrate customers in searching so that they stop their search process

earlier.
• Pull customers to products with low prices so that they think that the
favourable prices are representative for the whole program of offered
products.
• Give discounts only for selected products, which shall have the same
result as pulling customers to the low price corner.
• Run short-term promotions, which are unpredictable for competitors.
3.3
• Prohibit comparability of prices by including or excluding delivery costs.
 • Prohibit comparability of prices by giving different guarantees to the
customer.
• Give discounts only for specific delivery options of a product, which
shall have the same result as pulling customers to the low price corner.
• Focus on brand loyalty and supplier reputation in advertising.
• Avoid competition between different channels by offering different
product variants in different sales channels.
• Let the customers think that they already have the complete information.
3.4 THE FULFILMENT CHALLENGE
3.1.1 DELIVERING REAL GOODS
Real goods cannot be forwarded electronically to the customer. Forwarding
agencies and trucking companies are needed. Is this an own function or
should it be transferred to a third party (outsourcing)? Does it make sense to
think about delivery with drones? For example in areas with very low density of
population? How much is short-term delivery a competitive advantage?

In international transportation trans-shipping (plane/train/ship/truck) is an issue.

Also piracy and theft have to be mastered. A lot of tax and customs
requirements have to be observed. And finally the export to a foreign
country may raise the problem of dual use goods. Dual use goods are
products and technologies normally used for civilian purposes but which may
have military applications.

The next question where the supplier has to find an answer is whether the
customer is at home to take over delivered products? Was an alternative
delivery point defined in the order? Can the supplier deliver to a neighbour?
Does the customer want this? Can the supplier trust in the neighbour? How
can the delivery be proved if the neighbour signs? What can the supplier do
if the customer declares that he never got the shipment?

And finally should the supplier do everything to avoid transportation damages.

What are the packaging requirements? Who takes the risk of transportation
damages? And does customer pay for transportation?

3.3.2 DELIVERING DIGITAL GOODS

Digital goods can be copied without any damage of the original copy. Thus
the “master copy” must be protected against unauthorized usage.

As an example let us consider the electronic distribution of software according

to the model of SIIA (Software & Information Industry Association; see
Meier & Stormer 2008).

The process runs as follows:

• The software supplier provides a software product.

• With specific packer software the product is registered at a clearing
organization, a unique product identification number due to a global
numbering standard is generated and the software is transferred to a
BOB (Box of Bits) in coded form. The BOB is a specific digital
warehouse.
• The online customer selects the requested software, downloads it
from the BOB via the online shop of a merchant, pays for the software
and gets a digital key and a license from the clearing organization.
• The clearing organization registers the software products, administers
keys and its distribution and is a gateway for the money transfer from
customer to bank, too.
• The online merchant has a contract with the software supplier, can order
products from the BOB and offers consulting and services to his
customers.

3.5 B2C-BUSINESS AND CRM

CRM (Customer Relationship Management) aims at tracking and analysis of
all interactions of the firm with the customers to optimize sales volume,
customer effectiveness, customer satisfaction and customer loyalty. It integrates
all customer-oriented processes and considers the customer as a strategic asset
(A regular customer is the most profitable customer).

Process owner of the CRM processes is the supplier. In CRM there is no focus
on single transactions but on customer activities in general.

Typical CRM-Processes are:

 • Process customer requests,
• Inform customer,
• Solve problems of customer,
• Conduct repair and service,
• Manage complaints:
о Pre-complaint consideration set (complaint cause, dissatisfaction),
о E-complaint decision (complainers versus non-complainers),
о Profiling e-complaint senders (personality, demographics, culture),
о E-complaint channels (channel choice, publicity),
о E-complaint message (attitude orientation, language intensity),
о E-complaint receivers (employees, observers),
о Internal e-complaint management systems (IT, human elements),
о E-complaint response message (speed, tone, content),
о E-complaint feedback utility evaluations (perceptions, outcomes),
• Run customer loyalty improvement programs.
3.6 B2C SOFTWARE SYSTEMS
3.6.1 ONLINE SHOP
An online shop is characterized by one supplier and n customers. Process and
software are under the control of the supplier.

Subsystems or components of an online shop are:

• Shop system in a narrower sense:

о Sign-on function,
о Presentation of goods and services,
о Ordering function,
о Payment function,
о Delivery function,
о Search engine,

• Editing functionality (see CMS),

• Banner management (small advertisements),
• Recommendation engine,
• Call centre integration,
• Tax system,
• Development system,
• Data management (product catalogue, customers, transactions, documents, banner
pool)
 • Interfaces:
о Payment gateway,
о Data exchange with business partners (e.g. suppliers, forwarding
agencies, payment service providers),
о ERP-System (accounting, materials management),
о Data warehouse.

There are organizations, which certify online shops and award quality seals.
Examples of such organizations are:

• EHI (EuroHandelsInstitut): owned by EHI Retail Institute e. V.;

provide quality seal “EHI trusted Online-Shop”,
• Trusted Shops: founded 1999; assessment system for Online Shops;
Business Partner of European E-Commerce and Mail Order Trade
Association (EMOTA), an association of European mail order
associations; present in 9 European countries,
• TÜV Saarland (Germany), a German technical services corporation.

3.6.2 PROCUREMENT PLATFORM

A procurement platform is a computerized system designed to manage the
procurement process. Procurement platforms are often included in an
enterprise resource planning (ERP) or accounting software product.

A typical procurement platform includes purchase requisitions, purchase orders,

goods receipts, and invoice processing. In addition to these core
requirements, most systems include an array of reporting tools. Built-in
approval processes, controls, and funds management tools are usually standard
in the larger products.

A procurement platform is characterized by n suppliers and one customer.

Process and software are under control of the customer.

Objectives of a procurement system are:

• Reduction of prices through centralization (quantity rebates),

• Minimization of procurement costs (mainly in the area of C-
products/MRO = Maintenance, Repair and Operations),
• Minimization of warehousing costs (just-in-time delivery).
Functions of a procurement platform are:
 • Indent management,
• E-Tendering,
• E-Auctioning,
• Vendor management,
• Catalogue management,
• Purchase order integration,
• Order status,
• Ship notice,
• E-Invoicing,
• E-Payment,
• Contract management.

3.6.3 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

Customer relationship management (CRM) is an approach to manage a
company’s interaction with current and future customers (Menzel & Reiners
2014). The CRM approach tries to analyse data about customers’ history
with a company, in order to improve business relationships with customers,
specifically focusing on retaining customers, in order to drive sales growth. One
important aspect of the CRM approach is that a CRM system compiles
information from a range of different channels, including a company’s website,
telephone, E-Mail, live chat, marketing materials, social media, and more.
Through the CRM approach and the systems used to facilitate CRM,
businesses learn more about their target audiences and how to best cater to
their needs.

A CRM system usually provides the following functionality:

• External interfaces:
о Web channel,
о Interaction channel,
о Partner channel management,

• Marketing:
о Marketing resource management,
о Segmentation & list management,
о Campaign management,

о Real time offer management,

 о Lead management,
• Sales:
о Sales planning & forecasting,
о Sales performance management,
о Territory management,
о Accounts & contacts,
о Opportunity management,
о Quotation & order management,
о Pricing & contracts,
о Incentive & commission management,
о Time & travel,

• Service:
о Service order management,
о Service contract management,
о Complaints & returns,
о In-house repair,
о Case management,
о Installed base management,
о Warranty management,
о Resource planning,

• Internal interfaces:
о Trade promotion management,
о Business communication management.
4 B2B BUSINESS

4.1 THE PROCESS MODEL AND ITS VARIANTS

4.1.1 DEFINITION OF B2B
B2B stands for “Business to Business”. In general: Business interaction between
different organizations is considered. B2B E-Commerce is simply defined as E-
Commerce between companies (Xu 2014, pp. 119–130). Business processes
cross the boundaries of the participating organizations. B2B also includes
business interactions between sub-organizations of (big) organizations. Big
enterprises are often organized as a group of different autonomous legal entities.
There is no clear limit between “inner world” and “outer world”.
Somehow B2B is a synonym for integration and coupling of business processes.
What does this mean for the responsible management?

Business processes cross boundaries of organizations. Thus the process

ownership must be clearly defined and assigned. It also should be clear, who are
the owners of different sub- processes and how they have to coordinate their
work. The overall process owner may be a process committee consisting of
all sub-process owners. If there is a process committee then decision rules
must be defined and agreed on by all involved organizations.

There must also be integration and consistency of the underlying business rules.
These business rules must be consistent between the participating organizations
and they must be agreed on in all participating organizations. Often there is one
participating organization, which dominates all other participants, e.g. if B2B
commerce is established within a group of firms.
4.1.2 DIFFERENCES BETWEEN B2B AND B2C
The primary aspects of B2C business are:

• The fundamental pattern is the one-time cooperation with a focus on the

single transaction.
• Each transaction has to be executed as if business partners have never
cooperated in the past and will never come together again in the
future.
• Both business partners have to find out whether they want to conduct
this transaction (negotiation). Both business partners have to see that
they will benefit from this transaction (win-win situation).
• Prices have to be allocated for each transaction specifically (See chapter
3 of this book: pricing challenge).
• The appropriate payment method has to be selected (See chapter 7 of this
book: Electronic payment)

The primary aspects of B2B business are:

• The fundamental pattern is the on-going cooperation. Business partners

have agreed to cooperate for some time. Business partners have
concluded a (written) contract.
• Large data quantities are exchanged along the value creation chain; there
is an information process coming along with the business process.
 • Different partners with specific objectives have to be coordinated.
• All members work together to reach common objectives.
• Negotiation is in most cases completely done in the initiation phase of
the B2B cooperation; there is one decision to cooperate for many
transactions or a long period of time.
• Price allocation is in most cases completely done in the initiation phase
of the B2B cooperation; it is normally not done in each single
transaction.
• Payment is in most cases done beside the B2B cooperation via traditional
payment channels; often payments are not done for each single
transaction but for a set of transactions, e.g. on a monthly basis.

B2B stands for a specific type of cooperation. In most cases cooperation is

agreed between different autonomous firms or other organizations. However,
“B” may even be a single human being if the type of relationship is “B2B”.

4.1.3 SUPPLY CHAIN MANAGEMENT

Supply Chain Management (SCM) is considered as the strong interlinking and
coordination of all activities, which are related to procurement,
manufacturing and transportation of products. The supply chain connects
suppliers, manufacturing shops, distribution centres, shipping companies,
merchants and customers through processes like procurement, warehouse
management, distribution and delivery, to provide goods and services to the
customer. It is characteristic for supply chains that they coordinate several
value chain stages.

SCM is considered a dynamic and ever-changing process that requires the

coordination of all activities among all partners of the supply chain in order
to satisfy the final customer and maximize total supply chain profitability.
Process drivers are often manufacturers who want to improve and optimize the
cooperation with their pre-suppliers.

Due to the increasing relevance of supply chains a framework SCOR (Supply

Chain Operations Management) has been established by the Supply Chain
Council (SCC), now part of APICS (American Production and Inventory
Control Society), as the cross-industry de facto standard strategy, performance
management, and process improvement diagnostic tool for supply chain
management.
The SCOR framework covers several processes (Minguela-Rata 2014), which
are presented in tables 4 to 11.
 Customer Relationship
Management
Strategic processes Operational processes
• Review corporate and • Differentiate customers
marketing strategy • Prepare the
• Identify criteria for account/segment
categorizing customers management team
• Provide guidelines for the • Review the accounts
degree of differentiation in internally
the product/service • Identify opportunities with
agreement the accounts
• Develop framework of • Develop the product/service
agreement
metrics
• Develop guidelines for • Measure performance and
sharing process generate profitability
improvement benefits with reports
customers

Table 4: SCOR Customer Relationship Management

Customer Service
Management
Strategic processes Operational processes
• Develop customer service • Recognize events
strategy • Evaluate situation and
• Develop response alternatives
procedures • Implement solution
• Develop infrastructure for • Monitor and report
implementing response
procedures
• Develop framework of
metrics
Table 5: SCOR Customer Service Management

Demand Management
Strategic processes Operational processes
• Determine demand • Collect data/information
management goals and • Forecast
strategy • Synchronize
• Determine forecasting • Reduce variability and increase
strategies flexibility
• Plan information flow • Measure performance
• Determine synchronization
procedures
• Develop contingency
management system
• Develop framework of
metrics

Table 6: SCOR Demand Management

Order Fulfilment
Strategic processes Operational processes
• Review marketing strategy, • Generate and communicate
supply chain structure and order
customer service goals • Enter order
• Define requirements for order • Process order
fulfilment • Handle documentation
• Evaluate logistics network • Fill order
• Define plan for order • Deliver order
fulfilment • Perform post-delivery
• Develop framework of activities and measure
metrics performance

Table 7: SCOR Order Fulfilment

 Manufacturing Flow
Management
Strategic processes Operational processes
• Review manufacturing, • Determine routing and
sourcing, marketing and velocity through
logistics strategies manufacturing
• Determine degree of • Manufacturing and materials
manufacturing flexibility planning
requirements • Execute capacity and
demand
• Determine push/pull
boundaries • Measure performance
• Identify manufacturing
constraints and determine
capabilities
• Develop framework of
metrics

Table 8: SCOR Manufacturing Flow Management

Supplier Relationship
Management
Strategic processes Operational processes
• Review corporate, • Differentiate suppliers
marketing, • Prepare the
manufacturing and supplier/segment
sourcing strategies management team
• Identify criteria for • Review the
categorizing suppliers supplier/supplier segment
• Provide guidelines for the internally
degree of customization in • Identify opportunities with
the product/service the suppliers
agreement • Develop the product/service
• Develop framework of agreement and
metrics communication plan
• Develop guidelines for • Implement the
 sharing process product/service
improvement benefits with agreement
suppliers • Measure performance and
generate supplier
cost/profitability reports

Table 9: SCOR Supplier Relationship Management

Product Development and

Commercialization
Strategic processes Operational processes
• Review corporate, • Define new products and
marketing, manufacturing assess fit
and sourcing strategies • Establish cross-functional
• Develop idea generation product development
and screening processes team
• Establish guidelines for • Formalize new product
cross-functional product development project
development team • Design and build
prototypes
membership
• Make/Buy decision
• Identify product rollout
• Determine channels
issues and constraints • Product rollout
• Establish new product project • Measure process
guidelines performance
• Develop framework of
metrics

Table 10: SCOR Product Development and Commercialization

Returns
Management
 Strategic processes Operational processes
• Determine returns • Receive return request
management goals and • Determine routing
strategy • Receive returns
• Develop avoidance, • Select disposition
gatekeeping and • Credit consumer/supplier
disposition guidelines • Analyse returns and measure
performance
• Develop returns network
and flow options
• Develop credit rules
• Develop secondary markets
• Develop framework of
metrics

Table 11: SCOR Returns Management

The SCOR has developed a specific business process model (element of the
supply chain), which consists of 5 stages and focuses on the supply chain
issues:

• Plan: market forecast, procurement forecast, procurement alternatives,

manufacturing alternatives, delivery alternatives, supply-chain
alternatives,
• Source: materials staging request, delivery of parts, materials order, materials
delivery,
• Make: manufacturing order, product delivery,
• Deliver: customer order, delivery of customer order,
• Return: return/receive products from customer.

A lot of information has to be shared among the supply chain members:

• Inventory levels,
• Sales data,
• Order status for tracking/tracing,
• Sales forecasts upstream to suppliers,
• Production/Delivery schedule,
• Order information sharing.
4.2 B2B SOFTWARE SYSTEMS
4.2.1 ENTERPRISE RESOURCE PLANNING (ERP)
ERP (Ganesh et al 2014) is a category of business-management software –
typically a suite of integrated applications – that an organization can use to
collect, store, manage and interpret data from many business activities,
including:

• Product planning,
• Manufacturing or service delivery,
• Marketing and sales,
• Inventory management,
• Shipping and payment.

ERP provides an integrated view of core business processes, often in real-time,

using common databases maintained by a database management system. ERP
systems track business resources – cash, raw materials, production capacity –
and the status of business commitments: orders, purchase orders, and payroll.
The applications that make up the system share data across various
departments (manufacturing, purchasing, sales, accounting, etc.) that provide
the data. ERP facilitates information flow between all business functions, and
manages connections to outside stakeholders.

ERP systems provide the following functionality:

• Financial accounting: general ledger, fixed asset, accounts payables

(vouchering, matching, payment), accounts receivables (cash
application, collections), cash management, financial consolidation,
• Management accounting: budgeting, costing, cost management, activity based
costing,
• Human resources: recruiting, training, rostering, payroll, benefits,
diversity management, retirement, separation,
• Manufacturing: engineering, bill of materials, work orders, scheduling,
capacity, workflow management, quality control, manufacturing process,
manufacturing projects, manufacturing flow, product life cycle
management,
• Order processing: order to cash, order entry, credit checking, pricing,
available to promise, inventory, shipping, sales analysis and reporting,
sales commissioning,
• Supply chain management: supply chain planning, supplier scheduling,
product configurator, order to cash, purchasing, inventory, claim
 processing, warehousing (receiving, put-away, picking, packing),
• Project management: project planning, resource planning, project
costing, work breakdown structure, billing, time and expense, performance
units, activity management,
• Customer relationship management: sales and marketing, commissions,
service, customer contact, call centre support,
• Data services: Various “self-service” interfaces for customers, suppliers
and/or employees, product lifecycle management (PLM),
• Systems engineering (SE): product and portfolio management (PPM),
product design (CAx), manufacturing process management (MPM),
product data management (PDM).

4.2.2 SUPPLY CHAIN MANAGEMENT (SCM)

SCM is the management of the flow of goods and services. It includes the
movement and storage of raw materials, work-in-process inventory, and finished
goods from the point of origin to the point of consumption. Interconnected or
interlinked networks, channels and node businesses are involved in the provision
of products and services required by end customers in a supply chain. Supply
chain management has been defined as the “design, planning, execution, control,
and monitoring of supply chain activities with the objective of creating net
value, building a competitive infrastructure, leveraging worldwide logistics,
synchronizing supply with demand and measuring performance globally.”
Supply chain management is a cross-functional approach that includes managing
the movement of raw materials into an organization, certain aspects of the
internal processing of materials into finished goods, and the movement of
finished goods out of the organization and toward the end consumer. As
organizations strive to focus on core competencies and become more flexible,
they reduce their ownership of raw materials sources and distribution
channels. These functions are increasingly being outsourced to other firms that
can perform the activities better or more cost effectively. The effect is to
increase the number of organizations involved in satisfying customer demand,
while reducing managerial control of daily logistics operations. Less control
and more supply chain partners lead to the creation of the concept of supply
chain management. The purpose of supply chain management is to improve
trust and collaboration among supply chain partners, thus improving inventory
visibility and the velocity of inventory movement.
SCM systems usually provide the following functionality:

• Demand & supply planning: demands planning & forecasting,

safety stock planning, supply network planning, distribution
planning, service parts planning,
• Procurement: strategic sourcing, purchase order processing, invoicing,
• Manufacturing: production planning & detailed scheduling,
manufacturing visibility & execution & collaboration, MRP based
detailed scheduling,
• Warehousing: inbound processing & receipt confirmation, outbound
processing, cross Docking, warehouse & storage, physical inventory,
• Order fulfilment: sales order processing, billing, service parts order
fulfilment,
• Transportation: freight management, planning & dispatching, rating &
billing & settlement, driver & asset management, network
collaboration,
• Real world awareness: supply chain event management, auto ID/RFID
and sensor integration,
• Supply chain visibility: strategic supply chain design, supply chain
analytics, supply chain risk management, sales & operations planning,
• Supply network collaboration: supplier collaboration, customer
collaboration, outsourced manufacturing.

4.2.3 SUPPLIER RELATIONSHIP MANAGEMENT (SRM)

SRM is defined as the management of the relations between an organization and
its suppliers. The objective is to link all suppliers to the organization, to support
the procurement management for the total procurement process. SRM uses
methods and approaches of CRM but now from the customer’s point of view.
SRM is a sub-area of SCM.
An SRM system contains information about all sources of supply and all
procurement information like deliverable products, possible risks, terms and
conditions or quality. SRM can be considered as an advancement of E-
Procurement. Added value is generated through bundling of all information
about procurement and resources and providing it to the total organization.

SRM systems usually provide the following functionality:

• Purchasing governance: global spend analysis, category management,

 compliance management,
• Sourcing: central sourcing hub, RFx/auctioning, bid evaluation &
awarding,
• Contract management: legal contract repository, contract authoring,
contract negotiation, contract execution, contract monitoring,
• Collaborative procurement: self-service procurement, services
procurement, direct/ plan-driven procurement, catalogue content
management,
• Supplier collaboration: Web-based supplier interaction, direct document
exchange, supplier network,
• Supply base management: supplier identification & on-boarding, supplier
development & performance management, supplier portfolio
management.

4.2.4 MARKETPLACE
A (digital) marketplace is a piece of software with comprehensive E-Commerce
functionality. It can be characterized by m suppliers and n customers (m>1,
n>1). Process and software are under control of the marketplace owner. It
uses portal technologies and enables the cooperation of different suppliers and
different customers. Providing and demanding organizations act autonomously.
It is possible, that members are at the same time providing and demanding
organizations.

Marketplaces can be differentiated due to:

• Type of product or service,

• Type of transactions,
• Functions.
Due to the type of product or service we consider:

• Tradable quantities: Transaction costs must be low according to tradable

quantity.
• Specificity: A specific product with a low application potential has
low market liquidity.
• Complexity of products: Complex products are not appropriate for electronic
trade.
• Price components: material, service, production, transport, profit margin.
• Consequences for the consumer: contract business, spot business.
• Value creation: A-Products (Goods needed for the production), C-
Products (MRO = Maintenance/Repair/Operations).

Due to the type of transaction we consider:

• Market liquidity: number of transactions per time unit,

• Stage of transaction: due to process model,
• Meaning of transaction: due to industry, due to product,
• Duration of a transaction: with adjustment, without adjustment,
• Stability of a contractual relationship: long term (changes,
postponements), short term,
• Transaction costs: incidental costs (…up to 50% of total costs):
searching, signing of a Contract, currency hedging, insurances; external
transaction costs: by involved third parties, e.g. credit card company;
internal transaction costs (…savings potential supposed to be up to
80%): customer, supplier,
• Profit margin: if profit margins are high, Provider will get around
marketplaces; if profit margins are low, Market already has high
transparency; do we need a marketplace?
• Market model: number of participants – automation does only make
sense, if the number of participants is high,
• Degree of concentration: on the customer side, on the supplier side,
• Degree of globalization: distribution and allocation of power, structure of
market volume: value of transaction (high/low), number of
transactions (high/low),
• Transparency of market: complementary markets: support functions
(Transportation, Insurances), adjacent markets: Extension of value
creation chain, similar market structures.
Main functions of a (digital) marketplace are:

• Data management (master data, transaction data, catalogue),

• Pricing (market, calling for bids, tender offer, auction, negotiations,
power shopping: Consumers build a group),
• Buying (E-Sourcing, E-Procurement, workflow),
• Sales (ordering, order management),
• Stock exchange,
• Transport,
• Invoicing,
• Payment,
• Additionally: All functions which can be offered centrally for various market
actors,
• Interfaces (Provider, customer, forwarding and shipping agency, other
service providers, e.g. insurance firms).

5 IMPACT OF E-COMMERCE
5.1 THICS, MORALE & TECHNOLOGY
Ethics (sometimes known as moral philosophy) is a branch of philosophy that
involves systematizing, defending and recommending concepts of right and
wrong conduct, often addressing disputes of moral diversity. Philosophical
ethics investigates what is the best way for humans to live, and what kinds of
actions are right or wrong in particular circumstances. (Wikipedia 2015)

Morality (from the Latin moralitas “manner, character, proper behaviour”) is the
differentiation of intentions, decisions, and actions between those that are
“good” (or right) and those that are “bad” (or wrong). Morality can be a
body of standards or principles derived from a code of conduct from a
particular philosophy, religion, culture, etc., or it can be derived from a
standard that a person believes should be universal. (Wikipedia 2015)

The development of Information and Communication Technology (ICT) is

breath taking. We see a doubling of computer power every 18 months. Business
processes and business activities are increasingly based on ICT systems or even
completely taken over by ICT systems. The firm without any employee seems to
be a realizable vision.
5.1.1 PROPRIETARY RIGHTS AND DUTIES
The German constitution says in article 14 clause 2: “Ownership obligates.
Its application has to serve the public welfare.” What does this mean for
intellectual properties? Which obligations does the owner have? And how can
he protect his information assets? This is a very important issue for everybody
of us, because the major security concerns in the Internet are global bank theft,
data theft and social network data breaches.

5.1.2 ACCOUNTABILITY AND CHECK

There is or should at least be a responsibility and a liability for damages.

Objectives:
• Protect data and systems.
• Protect the rights of individuals.
• Guarantee the security of the society.
• Protect institutions.
• Protect values.

5.2 OVERALL IMPACTS OF E-COMMERCE

5.2.1 MACROECONOMIC IMPACTS

Let us first consider the size of E-Commerce. E-Commerce has increased
considerably in the developed world in the last 20 years. B2B transactions
continue to be the dominant form of E-Commerce across the world. In 2009,
B2B E-Commerce sales were 3.1 trillion USD or 32% of all B2B
transactions in the USA (US Census 2011).

B2C E-Commerce in the US accounted for 298 billion USD or only 2.8% of all
B2C purchases in 2009. Retail sales account for about half of the B2C figure,
with the rest coming from services. Global B2C E-Commerce spending was
estimated to be 708 billion USD in 2010 (IDC 2011). Since 2001 the growth
in E-Commerce among developed nations has been dramatic. The USA
witnessed a four-fold increase in E-Commerce sales. E-Commerce markets in
Australia and South Korea both increased more than seven-fold (OECD
2011).

Developing nations have yet to witness considerable gains from E-Commerce.

E-Commerce is increasing in importance and cannot be ignored by
strategists. First-mover advantages may be available in developing countries.

Digitalization has increased productivity and caused economic growth. E-

Commerce affects economies by increasing productivity (through additional
capital formation) and may spur innovations in processes that will further
increase productivity over the long term. Investments in ICT have clearly
increased economic growth in many developed countries. The evidence is
mixed in developing nations. While adopting ICT by itself may not confer
lasting competitive advantage, failure to do so will surely put an
organization at a disadvantage.
Also international trade is changed enormously by E-Commerce. E-Commerce
improves opportunities for increased specialization, which increase the gains
from international trade. A lack of infrastructure, poorly trained workforces,
and regulatory obstacles may reduce any potential gains from trade for
developing nations. Firms could find international trade more profitable with E-
Commerce. Trading opportunities in developing nations may not prove
profitable in the short-run.

E-Commerce also impacts monetary policy. Overall, E-Commerce is expected to

increase competition and reduce search and transaction cost. The net effect
will be lower prices. In the long run, these lower prices will represent a onetime
change in the price level. In the aggregate, firms will face increased pressure to
lower prices, but individual industries may avoid price reductions through
product differentiation and increased customization.

The costs associated with inflation, namely menu costs (the cost of physically
changing prices) could be dramatically reduced with E-Commerce.
Nevertheless, price rigidities will likely remain a fact of business even with
greater adoption of E-Commerce. Firms can more readily change prices in the
wake of inflation and other price shocks. However, E-Commerce does not
eliminate all costs associated with price changes
E-Payments and E-Money present future challenges for policymakers who may
find normal monetary policy tools less effective with the proliferation of E-
Payments and E-Money. Practically speaking, E-Commerce has had little effect
on monetary policy to date. Suppliers must consider whether to adopt E-
Payment systems for online and offline sales to avoid falling behind rivals.
E-Commerce reduces geographical constraints and increases interstate and
international transactions. Governments who fear these transactions will reduce
sales tax revenue. Revenue losses are small to date, but policymakers are
increasingly exploring options to tax these transactions. Firms conducting
interstate or international transactions will likely face increased pressure to
collect sales tax revenue on behalf of their customer’s governments.

5.2.2 MICROECONOMIC IMPACTS

Threat of entry
E-Commerce may increase economies of scale in industries where fixed costs
are unchanged, but variable costs are reduced. Thus minimum efficient scale
increases and the threat of entry falls. E-Commerce may, at the same time,
decrease economies of scale in industries where E-Commerce reduces fixed
costs. Thus minimum efficient scale decreases and the threat of entry rises. E-
Commerce may increase economies of scope and aggregation, particularly in
information goods. The threat of entry decreases because rivals must enter
with a bundle of goods.

E-Commerce may increase the importance of network externalities enjoyed by

incumbents. The threat from entrants on competing networks is reduced. E-
Commerce may encourage subsidization of one side of a platform market. Entry
barriers in the subsidized side of the platform fall. E-Commerce encourages the
proliferation of two-sided (platform) markets, which may be subject to ‘‘lock
in’’ of complementary goods. Application barriers to entry may arise from
such vertical restraints.

E-Commerce enables ICT outsourcing, converting fixed, sunk cost into variable
cost. The threat from entrants increases as the importance of sunk costs
declines.

E-Commerce decreases the importance of physical location in prime real estate.

Entry barriers fall. E-Commerce B2B vertical hubs may be owned and
controlled by large incumbents. B2B vertical hubs may be able to dominate
supply and distribution channels, effectively limiting opportunities for new
rivals.
E-Commerce decreases the importance of face-to-face trained sales force.
Entry barriers fall. E-Commerce and outsourcing decrease the importance of
physical nearness to skilled labour. Entry barriers fall. Early entry into E-
Commerce confers initial but not necessarily lasting advantages to incumbents.
Entry barriers decrease over time.

Power of suppliers
E-Commerce may increase the number of suppliers and facilitate greater
transparency of product prices and cost structures. Thus suppliers could see
reduced power over industry. Suppliers (incumbents) may maintain control
over B2B vertical hubs. Thus suppliers could see increased power over
industry.

E-Commerce reduces transaction costs between supplier and industry. Thus

suppliers lose ability to extract rents from industry, as firms can more
easily contract with competing suppliers. E-Commerce and vertical supply
chain integration tightens bonds between supplier and customer. Supplier loses
bargaining power due to the hold-up problem.

E-Commerce reduces switching costs through the brokerage effect. Lower

switching costs of customers reduce supplier power. Suppliers may make
significant investments in vertical supply chain integration. Higher switching
costs of customers increase supplier power

E-Commerce can increase vertical disintegration through outsourcing.

Reduced incentives for suppliers to enter downstream markets lower supplier
power.

Power of customers
E-Commerce spurs disintermediation in industries such as travel agency service
and brokerages. Intermediaries’ power (and even existence) is threatened. E-
Commerce spurs re-intermediation through B2B vertical hubs. Intermediaries’
power is strengthened.

Information and search costs are reduced with E-Commerce, and branding
may become less important. Product differentiation through branding decreases,
and customer power increases. E-Commerce allows new forms of product
differentiation, such as online ratings supplied by past customers. Product
differentiation increases, and customer power decreases. E-Commerce allows
firms to offer greater customization of products and services, such as computers
sold to order. Product differentiation increases, and customer power decreases.
Informational problems such as adverse selection E-Commerce allows firms to
offer greater customization of products and services, such as computers sold to
order. Product differentiation increases, and customer power decreases.
E-Commerce enables gathering information about customers and resonance
marketing. Suppliers can improve their ability to extract value from
customers. Customers might be able to aggregate demand (Groupon,
LivingSocial, etc.). Customer power increases, resulting in lower prices and
higher quality.

Threat of substitutes
E-Commerce enables consumers to more quickly identify and purchase
substitutes for a firm’s products. The power of any one supplier decreases.
Increasingly informed customers can easily find firms offering unique products
filling gaps in the marketplace. Firms selling unique products can extend
market share.

E-Commerce reduces search costs and therefore decreases switching costs

for consumers in markets where they are willing to search for alternatives.
Supplier power declines, and price levels and dispersion fall. E-Commerce
allows firms to reduce the efficacy of search engines (through sponsored search)
and to obfuscate prices and products. The customer’s ability to compare prices
and products falls, allowing firms to raise profits.

Rivalry among competitors

ICT, electronic market exchanges, and E-Commerce vertical hubs may enhance
the market share of the largest incumbents. Where significant differences exist
between firms, the impact of E-Commerce on market share will likely be
greater. E-Commerce-enabled outsourcing and reduced capital requirements for
entry may make market structure more competitive. Incumbent suppliers lose
power and market share. In the wake of E-Commerce innovations, firms may
attempt to capture a significant portion of the market share through aggressive
pricing strategies, particularly for goods with very low marginal costs (e.g.,
information goods). Competitive rivalry among suppliers in the industry heats
up, and supplier power in general decreases

Firms may join a coalition of competing firms selling less close substitutes in a
B2C exchange. The coalition can attract more customers to its site than any one
company could, and supplier power increases. E-Commerce lowers variable
cost relative to fixed cost, making overcapacity problems relatively greater.
Overcapacity in industry leads to cutthroat pricing; competition among
suppliers increases and prices fall.

E-Commerce and non-profit organizations

Non-profit organizations attempt to adopt E-Commerce practices from the for-
profit sector, such as using terms like ‘‘checkout’’ when soliciting donations
online. The commercialization of the donation process leads philanthropists to
decline to contribute to the non-profit. Non-profits adopt ICT as a symbolic
resource. The non-profit establishes legitimacy and improves its reputation
among donors and accountability organizations.

5.2.3 EMPLOYMENT
Does E-Commerce really create jobs as it is stated quite often? Let us consider
what really goes on.

If the customer uses his free money to buy additional goods or services then he
generates an additional demand. As long as this additional demand leads to a
need of human workload the freed manpower can be allocated in new jobs.
But… E-Commerce speeds up the price decrease. How long does it take until
the free workload is allocated in new jobs?

However, there is a second question: Can the free manpower be allocated 1:1
in other jobs? Or do the new jobs need other skills and a higher qualification?
Are the job-seeking people qualified enough? Can they be qualified?

Conclusion: There is a big social and political issue. But this cannot be solved
by company owners. Because nobody can ask them not to make profit. It is a
macroeconomic and political challenge. However, also business people as
well as computer scientists have a social responsibility.

5.2.4 EXTERNALITIES
Let us start with a definition: Externalities are side effects of business
transactions from which the parties involved in the transaction do not suffer but
also do not have an advantage. However, third parties may suffer or benefit
from those side effects.
Examples of externalities are:

• Environment pollution of a manufacturing facility, from which the

people around will suffer.
• Parking area of a shopping centre, which can be used for markets or
sport events or just as a playground when the shopping centre is
closed.

Negative Externalities lead (hopefully) to legal consequences. Positive

Externalities often generate new businesses.

Internet examples of externalities are:

• Coverage raises advertising.

• Virtual Communities are attractive for focussed advertising.
• Initiation of “clubs”: economic advantages of membership (Who
benefits?), appeal to human vanities (exclusivity).
5.2.5 GLOBALIZATION
Technical standardization (see TCP/IP, HTTP, SMTP, HTML, XML) creates a
global platform, which allows the cooperation of an infinite number of partners
all over the world. Global coverage leads to global markets. Suppliers can and
must produce in lowest cost locations. Jobs are transferred to low cost areas.

5.2.6 INFORMATION DENSITY

Data can be exchanged electronically. Media breaches can be eliminated. This
leads to an information flood. Thus efforts to find the relevant information may
increase or must be compensated by intelligent search agents. Information and
knowledge management becomes more and more important.

5.2.7 INTELLECTUAL PROPERTIES

Intellectual properties are traditionally protected by patents, copyright and trade
marks; this includes the economic application. There are ambivalent effects of
the Web: Coverage and distribution speed increase, but digitalized results can
be copied and manipulated arbitrarily.

Alternative ideologies are discussed:

• Protection of ownership through appropriate technical procedures,

 e.g. databases, certificates,
• Free use as cultural assets; commercial compensation through follow-up
business.

However, there is a problem. Who funds the efforts to create intellectual

properties? And who is the customer of the intellectual property? The one, who
pays for an intellectual property, will claim that only he is allowed to use it. This
is an old and not at all an Internet specific problem.

And last but not least: How can we ensure that an intellectual achievement is
assigned to the creator for a sufficient long time (copyright)? We have to state
the basic problem of intellectual properties in the Web is that anonymity of
users leads to intellectual theft (plagiarism).

5.2.8 ENCOURAGEMENT OF INTERNATIONAL COOPERATION

The significance of company size changes. We see advantages for very big and
very small firms, probably disadvantages for medium-sized businesses.
Consequently the company sizes are changing. There is a clear trend to very big
and very small companies. Will this be the death of the medium-sized
business?

5.2.9 PRICING
Digital markets increase transparency: Who offers what at which price?
Suppliers and customers have ideally the same degree of information
(symmetric). Arbitrage profits go down, perfect competition balance seem
possible.

5.2.10 TRANSPARENCY AND COOPETITION

Coverage and speed of the Internet lead to better comparability of offers, harder
competition and price pressure among suppliers and thus to lower costs on
the customer side (which would be an advantage for the customers, if the
personal income would not be reduced…). Transparency leads to price and
profit reductions on the supplier side. Inflation is slowed down.

Electronic business stimulates/requests virtual organizations, which are

cooperation of autonomous legal entities who work together on the background

of a common business understanding… From a customer’s point of view this

looks like one homogeneous firm. This is already well known in traditional
businesses, e.g. syndicates in underground construction. Competitors work
together temporarily. This is described with the term coopetition.

6.1 LEGAL ASPECTS OF E-COMMERCE

The following considerations are made on the background of the situation in
Germany resp. in European Union. Many questions will be the same or similar
in other legal environments. However, some issues may be considered
differently in other legal environments.

6.1.1 RELEVANT LAWS

In the European Union an E-Commerce-recommendation (Recommendation
2000/31/EG; ECRL) has been provided as of 08.06.2000. This had to be
transferred to national laws in the European Union.

In Germany there are several other laws being relevant for E-Commerce:

• Telecommunications Act (Telekommunikationsgesetz (TKG)),

• Telemedia Act (Telemediengesetz (TMG)),
• Data privacy laws (on federal and state level),
• Signature law (with a Signature Act, a Signature Policy and a Signature By-
Law),
• Administrative procedures laws (e.g. notification reform act, Formal
requirements adjustment act, justice communications act),
• Antitrust and public procurement laws (with contracting rules and a
law against restraints on competition).

In general there is the question which national law has to be applied when
making E-Commerce. Basically there is a free selection of the law system,
which is chosen as the basis for contracts. However, there is one exception (in
Germany): Contracts with consumers. The protection of the consumer’s state
of residence cannot be revoked.

In the European Union the freedom to offer professional services in other

countries (of the union) is protected by law.
6.1.2 DOMAIN RIGHT
Domains are assigned via ICANN (Internet Corporation for Assigned Names
and Numbers) and subsidiaries.

The domain .eu was started in 2005. In the beginning it was only available for
owners of registered trademarks. The assignment follows the first-come-first-
serve-principle. Strong formal procedures have been established.

The highest reconciliation instance is the Czech court of arbitration. An

applicant is not only obliged to present his own judicial position but also has
to expose that the opposite party does not have a reasonable interest in the
considered domain or has registered it in bad faith (Bad faith is assumed if the
domain has not been used for at least 2 years). No dispute action is accepted (if
a third party claims a stronger interest in the considered domain).

The domain .de has been assigned since 1996 through DENIC e.G., the
German chapter of ICANN.
Only civil law settlements are accepted. There is no trademark verification at
registration. Dispute actions are not possible. The domain assignment is fixed
for at least one year (to avoid domain grabbing).

6.1.3 IDENTIFICATION OF PROVIDER/IMPRESSUM

In Germany there is a clear legal obligation for all (!) providers of websites
(organizations as well as individuals) to identify themselves in a specific way.
The obliged elements of provider identification are:

• Complete name and address (no P.O.Box allowed),

• Telephone number,
• E-Mail address,
• Inspecting authority if business needs a state licence,
• Value added tax identification number (if given),
• Business identification number, if given,
• Commercial register number, if provider runs a registered business,
• Similarly for registered cooperatives and registered associations.

For organizations the top representatives must be reported. There are

specific obligations for specific businesses.
6.1.4 LIABILITY FOR DISTURBANCE
A disrupter is a person or organization being involved in causing damage (see
BGB § 1004; BGB = German Civil Code). His specific contribution is not
relevant. Accountability is assumed even if you let a third party cause damage
though you would have been able to prohibit it. This accountability is always
given even if you are not aware of an illegal activity.

However, auditing duties have to be reasonable. Preventive auditing is requested

but not clear. In 2016 pure conveyance of information has been allowed by the
German Telemedia Act, if just the technical capability is provided, e.g. WLAN
services in a public area are provided.

6.1.5 CRIMINAL LAW

Due to German criminal law (StGB § 9) an action has been conducted where
the actor did it or where he wanted to do it or where the result of his action
occurred or was expected by him to occur.
What does this mean? If somebody provides racist content in German via a
server running in a foreign country then the German prosecutor and German
police have to become active because of the German language they assume that
the actor wanted to address his ideologies to a German audience and wanted
to have an effect in Germany.

6.1.6 RIGHTS OF EMPLOYEES

In Germany the employer is the owner of his Web and mail system. An
employee is not allowed to use it for private reasons if there is not an explicit
permission of the organization.

If the private use is permitted then the employer is considered to be a

professional telecommunication services provider. He is not longer allowed to
check mails because the privacy of correspondence, posts and
telecommunications dominates the employer’s right to check the activities of
his employees. Therefore the explicit prohibition of private use of any system
of the organization is strongly recommended.
7 ELECTRONIC PAYMENT

7.1 BUSINESS AND MONEY

Money makes the world go round. It is the “lubricant” of powerful
economic areas – we also need money to make business in the Web. We
know economic areas without money, but they usually are restricted to small
geographic areas – and if you look closely on them, you will find some kind of
money, too. Why does money arise almost inevitably? The reason is that money
is a means to buffer (the value of ) achievements over time.

Money plays a basic role in the economic cycle with the subsequently listed steps:

• Deliver a product or a service.

• Get money for it.
• Offer money to get a product or service.
• Get the product or service.
• Spend the money for the delivered product or service.

Notes and coins are a universal medium of exchange. The specific physical
entities (notes, coins) are independent from the actual owner. They are long
living and divisible into very small units. However, the owner has the problem
of fraud and the problem of loss.

The physical value of the medium (notes, coins) is much lower today than its
business value. Thus it needs authorization by a central bank. The business
value is commonly accepted and in some way guaranteed by the authorizing
institution. However, the economic areas where specific notes and coins can be
used are limited because of different currencies.
The handling of notes and coins is very simple. Transaction costs (on farmer’s
market) are extremely low. Business transactions with notes and coins allow
complete anonymity of the participants. However, there are some restrictions
due to laws.

Real economic areas use money in cash and book money. Business with money
in cash
runs as follows:

• Customer and supplier come together physically (at the same location).
• The supplier has a product or service offering; the customer has notes and
coins.
 • Both partners exchange product or service and money synchronously.

Prerequisites are:

• The customer assumes that the supplier is the legal owner of the goods.
• The supplier assumes that the customer is the legal owner of the money.
• The customer checks goods; the supplier checks notes and coins.
• Customer and supplier do not have to know each other.

Problems are:

• Notes and coins must be accepted by both partners.

• Notes and coins must be authentic (no bad money).
• Notes and coins can be lost or stolen or disappear.

Today most business transactions are conducted without the use of notes and
coins. We usually do business with book money. Business with book money
runs as follows:

• Customer and supplier need a banking account; this makes some kind of
bank necessary (the bookkeeper).
• The bookkeeper guarantees that the account balance is given and he
transfers the money if requested by the account owner. He guarantees
that the account owner can exchange the amount of his account
balance into notes and coins every time.
• Book money is linked to the banking account and the account owner.
Thus transactions cannot longer be conducted completely
anonymously.
• The account owner has to pay the bookkeeper for his services (transaction
costs).
• There is a higher protection against fraud and loss – but of course no perfect
security.

Finally the following question must be answered: How can we transfer “real”
money into the economic area “Web”?
7.2 THE PAYMENT CHALLENGE
First we differentiate following categories of money:

• Money in cash,
• Book money,
 • E-money.

Primary payment methods are:

• Cash payment,
• Bank transfer,
• Debit note,
• Wallet payment.

Derivative payment methods are:

• Debt collection and billing methods,

• Check-based methods,
• Mobile phone based methods,
• Credit card based methods,
• E-Mail based methods,
• Prepaid charge card based methods.

7.2.1 ASSESSMENT OF PAYMENT METHODS

The assessment of payment methods from a supplier’s point of view is conducted
due to a
magic triangle given by:

• Acceptance by customer,
• Protection of supplier against shortfall in payment,
• Costs.

Technical parameters for the selection of appropriate payment methods are:

• Periodicity of payment (one time/periodic, e.g. subscriptions),

• Internationality of business,
• Anonymity of customers,
• Level of payment guarantee (protection against shortfalls in
payment, protection against delays in payment),
• Distribution and acceptance of the method.

Also payment amounts and cost structure determine the selection of payment
methods:

• Invoiced amount,
• Payment dependent costs: customer, supplier (fix per transaction or
variable per transaction, e.g. sales volume dependent),
 • Payment independent costs (for customer, for supplier):
о one time costs: procurement costs, setup and adjustment costs
(dealer, third parties, public fees),
о periodic costs: basic charges for services and software, rental fees for
hardware.

Security requirements for selecting a payment method are:

• Transaction control & monitoring,

• Secure authentication,
• Liability scope.

Finally the integration into the sales process has to fulfil requirements from
the workflow as well as requirements from the technical implementation.
7.3 PAYMENT PROCEDURES
Let us now consider payment procedures in detail.

7.3.1 PAYMENT PER INVOICE

The course of action is:

• Order,
• Delivery,
• Sending an invoice (integrated into delivery, separated from delivery),
• Payment (after receipt of delivery, after receipt of invoice, per bank
transfer),
• Confirmation of incoming payments.

Potential problems are:

• Delivery without invoice,

• Invoice without delivery,
• Deviations between delivery and invoice,
• No payment by the customer,
• Delayed payment by the customer.

This payment method should be assessed as follows:

• This payment procedure is not an integral part of E-Commerce.

• The risk is totally carried by the supplier.

7.3.2 PAYMENT PER CASH IN ADVANCE

The course of action is as follows:
 • Order,
• Invoicing and sending an invoice,
• Payment,
• Delivery after receipt of payment.
Let us consider in more detail the payment method GiroPay, which since 2000
is provided by GiroPay GmbH. The firm was founded by a group of
German banks. The course of action is:

• Initiation of a payment via GiroPay; statement of a Bank identifier

code (BIC) by the customer himself or by the supplier,
• Re-direction to the Web-banking portal of the customer’s bank by the
supplier (on his Web portal),
• Log-in with account number and pass word by the customer at his bank,
• Order confirmation of a pre-filled money transfer form by the customer at his
bank,
• Transfer of a confirmation of payment and re-direction to the Web
shop by the customer’s bank,
• Credit entry of the payment amount on the bank account of the
supplier by the customer’s bank.

The first surrounding condition is that the customer account must have
allowance for online banking and customer’s bank must attend the GiroPay
– method. The second is that the supplier must have a bank account, must
have a contract with a GiroPay supplier bank, and must be linked
technically to the GiroPay service provider.
Potential problems are:

• Duration from payment to delivery,

• Deviations between payment amount and delivery volume,
• Confirmation of payment receipt.

This payment method should be assessed as follows:

• The payment is not an integral part of E-Commerce.

• The risk is completely assigned to the customer.

7.3.3 PAYMENT PER CASH ON DELIVERY

The course of action is:
 • The customer orders with C.O.D. He has to specify a delivery address.
• The delivery is done with an invoice. The supplier forwards the parcel or
letter together with the invoice to his delivery service provider. The
delivery service provider forwards the parcel or letter to the customer.
• The cashing is done on delivery. The customer forwards money to the
delivery service provider.
• Delivery is confirmed by the customer and receipt of cash is noticed.
• The delivery service provider transfers the money to merchant’s bank.
• Confirmation of payment by the supplier.

Surrounding conditions are:

• The customer must provide delivery and payment data.

• The delivery service provider has to take over the cashing function.

There are several potential problems:

• Delivery is not possible because the customer is not present at the delivery
address,
• Deviation between delivery and invoice,
• Availability of cash at the customer,
• Problem of change money.
This payment method should be assessed as follows:

• This payment method is not an integral part of E-Commerce.

• The method is risk neutral.

7.3.4 PAYMENT PER DEBIT NOTE

The course of action is:

• Order: together with the allowance for bank collection to take

money from the customer’s bank account,
• Clearance: submission of the debit note by the supplier at his
bank/collection of the requested amount from the customer’s account
by the supplier’s bank,
• Delivery to the customer,
• Forwarding the invoice (if not handled via the Web).

Surrounding conditions are:

 • Customer has a giro contract with his bank.
• Supplier has a cashing contract with his bank.
• Customer’s bank and supplier’s bank have a debit-note-handling contract.

Potential problems are:

• Money collection “bursts” (Customer’s account balance is bad),

• No delivery,
• Deviation between delivery and invoice.

This payment method should be assessed as follows:

• Simple application,
• Trustee function of the bank,
• Risk more on the customer’s side,
• Security issues (Account data in the Web).
7.3.5 PAYMENT PER CREDIT CARD
The course of action is:

• Order,
• Invoicing,
• Payment acceptance by credit card,
• Delivery,
• Forwarding of invoice (if not done via the Web).

Surrounding conditions are:

• The customer must have a credit card contract with a bank.

• The merchant must have a credit card acceptance contract with a
bank and must be technically linked to a Payment Service Provider.

Potential problems are:

• No delivery,
• Deviation between delivery and invoice,
• Payment dysfunctions.
This payment method should be assessed as follows:

• Payment is guaranteed by the credit card company.

7.3.6 E-PAYMENT
E-Payment methods have been developed especially for E-Commerce and
supplement the traditional payment methods. Payment functions are adopted by
specific E-Payment providers to unburden the supplier. E-Payment uses for the
most part well known traditional payment methods and combines or bundles
them to new services.

Course of action:

• Customer initiates a payment at the supplier,

• Supplier transfers payment request to an E-Payment provider,
• E-Payment provider leads customer to his payment site,
• Customer confirms payment,
• E-Payment provider transfers payment confirmation to supplier,
• E-Payment provider charges bank account of customer,
• E-Payment provider creates credit note for bank account of supplier.

Selected E-payment methods are presented subsequently.

E-Mail based methods like PayPal

PayPal members are able to send money to any person in the covered
countries, if they have been registered with personal and account data and if
receiver has an E-Mail-address. If the payment receiver does not have a
PayPal account he will be informed via E-Mail, that he has received an
amount of money. To be able to use the money and transfer it to his banking
account he must register himself as a PayPal member. PayPal can be used
also via smartphone or other Web enabled devices

Transferred data are protected with SSL encryption. Finance data of the
sender (e.g. credit card number or banking account number) are not
communicated to the receiver of the money. This shall avoid misuse of the
data by the receiver of money.

Smart Card based methods

The course of action is:
 • Go to the bank and fill your wallet/purse,
• Pay with the content of your wallet/purse (is used typically at POS (Point of
Sales),
e.g. ticket machine, car park pay desk).
Features:

• Bank only needed to fill the card,

• The bank is not involved in the business transaction,
• Physical medium (see also notes and coins),
• For Web transactions connect card reader to computer,
• Use independently from owner is possible,
• In fact the money card is a wearable account which is with the customer
offline,
• Variation: Throwaway money card – smart card is loaded one-time, the
stored amount can only be paid at once; after this transaction the card
becomes valueless.

Problems:

• For every transaction you need specific equipment to read the money card.
• Is the amount shown identical to the amount, which is stored on the card?
• Does the supplier only take the money, which he is allowed to take?
• Are third parties able to steal money from the card?

Examples are paysafecard and T-Pay MicroMoney.

Mobile phone based methods like mpass

mpass is a payment method, which integrates online shopping in the Web with
mobile phone technology. In combination with the personal mpass-PIN and
a SMS to authorize a payment this method is considered to be very secure.

You need a German mobile phone number and a German bank account.
There may be similar variant in other countries. This depends on the market
position of the mobile phone company.

After an initial (and free) registration the customer can use the method as
he wants and needs it.
The course of action is:

• Select mpass as your payment method in the shop,

• Enter mobile phone number and mpass-PIN,
• Receive a SMS with a request to confirm purchase,
• Answer “YES” to SMS; payment is released,
• Invoiced amount is collected from your banking account.
Cashing and billing methods like ClickandBuy
ClickandBuy provides a customer account where banking account and credit
card data of customer are stored on a ClickandBuy server. In an online shop
the customer has to enter only his ClickandBuy user name (E-Mail address)
and his password. He does not show his banking account or credit card data;
these data are not transferred via the Web.

Some well-known online shops, which accept payments by ClickandBuy are:

Apple iTunes Store, T-Online Musicload, Steam, bwin, Test.de, FAZ.NET,
iStockphoto.
Conclusion
In the E-Commerce area we have a comprehensive potential for data collection
and data analysis. We have to observe the economic principle also in website
controlling. Not everything, which seems to be of interest, improves the
management capability of our organization.

Basis for measurement and generation of indicators always must be clearly

defined targets – however we must be flexible enough to cope with the dynamic
of the E-Commerce. Measured data must be stored and administered. This
must be documented in the requirement documentation.
I was
The website-analyst is the most important user of the system and must be a
member of the project team.
REFERENCES

Ackermann, T 2013, IT Security Risk Management, Springer

Fachmedien, Wiesbaden, ISBN 978-3-658-01115-3 (eBook).

Baan, P (ed.) 2013, Enterprise Information Management, Incentro,

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