Introduction to E-

Commerce

Prepared by
Risala Tasin Khan
Professor
IIT, JU

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 • Electronic commerce, abbreviated as E-
Commerce, is doing business activities over
an electronic medium such as the Internet.
• In other words, Sharing Business
Information, Maintaining Business
relationships and Conducting business
What is E- transactions using computers connected to a
Telecommunication Network is called E-
Commerce Commerce.
• The fundamental purpose of e-commerce is
to execute business transactions which
include orders sent to vendors to supply
items, invoices sent by vendors, payments
made by credit cards, cash or e-cash.

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Definition of E-Commerce on Various
Perspective

• From a buyer’s perspective:

– From a buyer’s perspective, e-commerce is the process of
buying or acquiring goods or services through-
• Realizing the need
• Researching a product
• Selecting a vendor
• Providing payment
• Accepting delivery
• Using product support

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From a seller’s perspective (Continue..)

• From a seller’s perspective, e-commerce means sellers business

practices by-
– Market research to identify customer needs.
– Manufacturing products or supplying services that meet
customer needs.
– Marketing and advertising to make customers aware of available
products and services.
– Providing a method for acquiring payments.
– Making arrangements for delivery of the product.
– Providing after-sales support.

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 Early generation of Internet

• Mid-1990s, the prediction of using Internet in Business World was

not even in consideration.
➢ Web sites were viewed as optional extras that looked
impressive, but didn’t actually do very much.
➢ E-mails were treated with suspicion and considered by many as
either an impersonal or an impractical way of communicating.
• Cheaper Internet access, ever faster and more powerful connections
and the rise of the “mobile Internet” have all played their part in the
online revolution.
• The main factor, though, is the “INTERNET” itself: a vast network of
information and resources that allows people to interact with each
other from anywhere in the world.

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 Reasons behind the success of E-
Commerce

• There are four main reasons for people going on the Internet:
1. To find information;
2. To be entertained;
3. To interact;
4. To shop;
• If a Web site cannot satisfy any of the above criteria, it is unlikely to become a
cyber success.
• Therefore, any e-commerce site should be designed from the perspective of end-
user.
• This “outside in” approach is the key to every effective site, from Amazon to
Yahoo!

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 Difference between E-Commerce and
Traditional Commerce

Different Practice: Another difference is that you have lot

more competition.
Online shopping is completely different practice to
shopping on the high street.
People who arrive at your site are there because they
have sought you out, not because you have an
attractive workplace or because you are conveniently
located.
Businesses are now expected to inform and interact
with their customers at a closer level than ever
before.
The old business cry of “location, location, location”
has now been over-shadowed by the voice of e-
business: “information, information, information”.

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 Net Benefits

• Saving Money:
– The Internet can help your business save on the administration costs of
taking orders by automating the process.
– E-mail can help you save on stationary costs and online marketing often
proves a lot more cost-effective than marketing offline
• Improving Customer Service:
– By increasing the possibilities for communication between your business
and its customers, you can often offer an improved level of service to
your existing customers.
• Keeping Records of Your Activity:
– Because the Internet enables you to store information, you can keep
track of all business correspondence very easily.

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 Net Benefits(Cont…)

• Attracting New Staff:

– The World Wide Web is now one of the most important resources for
job seekers.
• Preserving Your Market Share:
– The Internet is not only a means of expanding your business, it is also a
way to protect and hold on to the market you have already established.
– Real world businesses risk losing out to slick start-ups if they don’t
embrace the Internet with open arms.

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 Net Benefits(Cont…)

• Making Money:
– The Internet offers businesses new ways of making additional revenue
by affiliate programs, selling advertising space, securing sponsorship and
various other methods.
• Going worldwide:
– Your Web site can help you reach a worldwide market as geographical
limitations are all but eliminated.
• Being in a Constant Contact:
– The Internet transforms your 9 to 5 business into a 24-hour operation.
Your Web site works while you are asleep.
• Knowing your Market:
– As the Internet is interactive, you can receive constant feedback from
your audience

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 Types of E-Commerce

• There are FOUR main modes of e-commerce:

– Business-to-Business E-Commerce (B2B)
– Business-to-Consumer E-Commerce (B2C)
– Customer-to-Consumer E-Commerce (C2C)
– Consumer-to-Business E-Commerce (C2B)
• Another new entrant is Government to Customer
(G2C) and Government to Business (G2B) in which
individuals and business organizations can
transact business with the government using the
Internet

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Business-to-Business E-Commerce (B2B)

• Business-to-business (B2B) describes commerce transactions between

business companies, such as between a manufacturer and a distributor, or
between a wholesaler and a retailer. Businesses focus on selling to other
businesses.
❖ Business to business e-commerce (B2B e-commerce) is perhaps the most
important of the three e-commerce modes.

❖ It is growing very fast and it is predicted that most businesses in the world
will participate in B2B e-commerce during this decade.

❖ We will illustrate B2B e-commerce with an example of a business purchasing

goods electronically from a vendor.

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 How B2B transaction works

❖ The two parties are the purchaser and the vendor. Business organizations
normally have their own local area network which connects all computers of
their organization.
❖ A purchase transaction initiated by a purchaser proceeds as follows:
1. purchase order is entered by the purchaser's office using a computer and
transmitted by e-mail to the vendor.
• A standard format for purchase orders (sent by e-mail) is called
Electronic Data Interchange. (EDI) standard may be used or a mutually
agreed format may be used.
• There is also a need to sign the purchase order electronically to meet
legal requirements.

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 B2B(Cont…)

2. When the purchase order is received, the vendor immediately acknowledges it

electronically.
– Observe that the purchase order need not be entered manually again by
the vendor's clerk.
• This is in contrast to current computerized systems in which a vendor's
clerk has to enter manually the purchase order on a PC (when it is
received) for further processing.
• Manual entry is slow, prone to errors and expensive as a clerk's time has
to be allocated for this.
• The inventory database is now searched for the availability of ordered
items and appropriate action is taken to (electronically) acknowledge
the purchase order.

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 Cont..

• The inventory database of the vendor is updated and a delivery note is

prepared to be sent to the receiving office of the purchaser.
• Concurrently an invoice for items supplied is transmitted by e-mail to the
purchaser's accounts office.
• The vendor dispatches the items physically along with a hard copy of delivery
note. The delivery note is needed for physical inspection of items received
and reconciling them with electronic delivery note and invoice to facilitate
payment.

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 Cont…

3. The items received from the vendor are sent to an inspection office of the
purchaser along with the delivery note.
– The inspection office physically checks the items for both quantity and
quality and sends a discrepancy note of items rejected to the purchase
office.
4. The accepted items are sent to the store along with an electronic intimation.
– The stores office takes items into stock and also updates the inventory
database.
4. Simultaneously the purchase office is intimated to enable it to handle rejected
items and to authorize accounts departments to pay for the accepted items

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 Cont…

5. The accounts office electronically pays for items accepted and taken into
stock.
– Electronic payment is made by the accounts office by informing its
banker to debit authorized amount from its account and credit it to the
vendor's bank account.
– The vendor's account may be in a different bank. The electronic transfer
of funds from one bank account to another bank account is an
important aspect of e-commerce.
– This is called Electronic Funds Transfer (EFT) and is already used in India
for dividend payments, interest payment, etc. Observe that if EFT is
used, no hard copy of cheques are sent by mail and the funds transfer is
fast.

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 Business to Consumer E-Commerce (B2C)

• When an individual buys items from a shop using the Internet and the entire
transaction is carried out electronically, we call it business to customer e-
commerce and it is abbreviated as B2C e-commerce.
• The shops which transact business using the Internet are called by various
names, some of which are e-shop, virtual store, dot com shop and cyber
shop.
• One of the earliest e-shops was a bookstore called amazon.com set up in
USA which primarily sells books and has now added other items such as gifts,
music CDs, etc.

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 How B2C model works

1. Persons who want to shop have to use the Internet. They may have Internet
access from home or workplace or an Internet kiosk (i.e., public Internet access
point such as cyber cafes).
• A customer normally knows the web address of the shop with whom
he or she wants to transact business and typically uses a web browser
such as Firefox or Internet Explorer and enters the web address of the
shop.
2. The home page of the shop is displayed which provides various options to a
customer.
– If a customer wants to buy a book, he or she keys in its particulars.
– He or she may also request books available on a particular subject in which
case the shop would search its database and give a list of books available on
that subject.
– The shop may also display the contents page of a book selected by the
customer, reviews of the book, its cost and discount if any.

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 Cont…

3. If the customer wants to buy one or more books, he or she points to the book
details displayed on the screen using the mouse and clicks.
– The vendor's computer enters the prices of the book(s) selected by the
customer, provides discount (if any) and displays the net amount payable.
– The customer enters the shipping address and payment is usually by credit
card. The credit card number is entered which is used for charging the
customer.
– Sometimes option is_ also given to pay cash on delivery. Credit card
payments are more common, As the Internet is not very secure, it is
necessary to hide the details of the credit card number. from snoopers and
also from the merchant.
– The credit card details should be available only to the bank authorizing
payment. It is done by using a protocol called Secure Electronic Transaction
protocol (abbreviated as SET protocol)

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 Cont…

4. The credit card details entered by a customer is sent in an encrypted (i.e.,

secret coded) form over the Internet and is forwarded to the authorizing
bank by the merchant.
5. If the credit is OK, the bank authorizes the transaction.
6. The e-shop acknowledges the order and gives the details of delivery- period
and mode of shipment as desired by the customer.
7. The e-shop may not stock the items in its warehouse. It sends an electronic
request to the distributor to ship the items either directly to the customer or
to the e-shop for packing and forwarding.
8. If it is a fast moving item, e-shop will normally stock the item and dispatch it to
the customer.
9. The credit card company's bank credits the shop's bank account electronically
and sends a bill to the customer.

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 Customer to Customer E-Commerce
▪Customer to customer e-commerce (C2C e-commerce) is one in
which two individuals want to sell/buy items. The items are usually
used items, collector's items such as stamps; coins or antiques.

▪The seller posts the description of the item and the expected price
of the item on a web site maintained by a company which acts as a
broker

▪An individual who logs on to this site looking for items may be
interested in the item advertised for sale.

▪He/she then offers to buy the item and may quote a price.

▪The price is mutually settled between the two parties by exchanging

messages through e-mail. 24
▪The broker then-arranges to collect the item from the seller and
dispatches it to the buyer and collects payment for the item and a
fee from the buyer and the seller for services.

▪ The primary advantage of this transaction is that the Internet

enables two individuals located at distant places to come together to
buy and sell using an intermediary's web address.

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 Customer to Customer E-Commerce

Customer1 Internet Customer2

Wants to sell Item 1 Wants to buy Item 1

Broker’s website
•Advertises - "for sale"
•Brings together buyer and seller
•Transports items
•Collects fee from both Seller
&Buyer

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 ADVANTAGES AND DISADVANTAGES OF E-
COMMERCE

There are, many advantages of B2C and C2C e-commerce which are
enumerated below:

•One can buy/sell items from anywhere in the world using one's
computer and Internet connection. Transactions can go on 24 hours a
day, 7 days a week as the servers maintained by businesses to cater to e-
commerce are usually never switched off.

•Besides goods, services such as financial, legal and medical

consultation may also be obtained using the World Wide Web
infrastructure.
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 The major advantages which accrue to businesses that
participate in e-commerce are as follows:

•Businesses can reach out to customers worldwide at low cost.

A well-designed web page will be an asset to any business to
publicize their goods and services and also to sell their
merchandise.

•Order processing time and cost are reduced as manual entry of

data is reduced. When a vendor receives a purchase order, he
or she need not re-enter it on his system for data processing.
Businesses are also carried out faster as electronic exchange of
documents is instantaneous across the world.

•A manufacturing organization requires components which are

supplied by several vendors.

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•Electronic funds transfer is fast and safe.

•A large number of potential business partners can be quickly found

and contacted by searching the World Wide Web.

•Certain types of goods can be customized and sold directly by a

manufacturer or assembler eliminating middlemen. For example, Dell
Computers sells PCs directly to customers configuring them as per
individual's requirements. Middlemen such as distributors and retailers
are eliminated.
•Supply chain management is improved as manufacturers can adjust
their inventory level of items and order processing based on customer
orders in hand and, customer preferences gathered over a period of
time.

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•The cost of setting up an e-commerce site is quite small compared
to the cost of having large premises.

•The cost of transactions is quite low. It is estimated that,

transaction costs are less than a fifth of that of traditional business.

•There are some items such as airline tickets where competing

airlines provide several special packages and prices. Quick
comparison is possible on the World Wide Web and a confirmed
booking obtained on-line.

•Companies can maintain on-line e-catalogue of items and a price

list which can be quickly updated.

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 Disadvantage of E-Commerce

• Payment by credit card requires faith in the system security. Customers

are wary of giving their credit card numbers to vendors who have only a
"web presence". Secure credit card transactions in which credit card
numbers are encrypted and sent to a vendor are essential.

• Electronic Data Interchange standards have to be in place before business

to business e-commerce can increase. Small businesses may find it difficult
to conform. Data interchange using XML (a new document description
language) is expected to solve this problem.

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• Many persons go shopping for social contacts, touch and feel
and bargaining before buying items. E-commerce will de-
personalize transactions.

• A major concern is security of transactions on the Internet. Spies

or hackers can steal and misuse credit card numbers, purchase
orders, invoices, etc., if appropriate care is not taken.

• Shopping portals will be vulnerable to attacks by hackers unless

special precautions are taken. One type of nuisance is called denial
of service in which a large number of frivolous enquiries are
posted to a portal making it inaccessible to legitimate customers.

• Portals have to be protected by special security systems from

virus attacks and other electronic vandalism and espionage.

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• Customers privacy may be lost if regular log is kept of their buying
habits.

• The web site of vendors should have the capability of being scaled
up quickly when the number of users suddenly increases. If the
server's capability is limited, the response time of the site will be
unacceptably high if a large number of customers decide to use the
site. Thus, a vendor should be able to add more servers quickly when
this happens.

• If there is a sudden increase in orders, there may be logistical

problems in physically delivering items to customers. Long delays in
receiving ordered goods will adversely affect future sales. Being
prepared to handle seasonal surge in demand requires pre-planning.

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• When a successful e-business is launched, immediately there
will be many copy cats who will attempt to duplicate it.
Duplication is much simpler in e-commerce compared to
traditional business as it is easy to quickly build a web site and
start a competitive business. Thus, to maintain the advantage of
being first with the idea requires continuous innovation and
improvement.

• On-line businesses expose their catalogues and price lists to

competitors. The advantage of secrecy of traditional mode of
doing business is lost.

• Not every item is suitable for sale in the web. For example
saris, fancy furniture, etc., which require touch and feel are
unsuitable for sale through the web.
In spite of these disadvantages, e-commerce is bound to
rapidly increase due to its convenience, cost saving and wide
reach. 34
 A good supply chain management
ensures having the right product, at
the right time, at the right place and
at the right price.

The primary aim is to reduce the

volume of unsold items and ensure
SUPPLY CHAIN that items are not out-of-stock when
MANAGEMENT required.

IN E-COMMERCE
Most organizations participating in
e-commerce would like to have
guaranteed delivery of items when
required.

There are two strategies that can be

followed.

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 Cont…

1. If it is a commonly available commodity, then one can follow an e-auction

path.
– In this strategy a request for e-quotation is publicized in the web on the
organization's web site or on an intermediary site specializing in B2B
auctions.
– Based on the quotes the best option can be picked. This can be done
periodically. Based on sales forecasts, delivery schedules can be
arranged to ensure just-in-time availability.
– This will minimize the cost of procurement and minimize inventory
holding cost.

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 Cont…

2. If the item is specialized where it is important to develop vendors, a

cooperative strategy can be followed.
– In this case, the cooperating vendor can be allowed access to the
demand forecasts and the actual stock position in the database via the
extranet or VPN.
– Using this information the cooperating vendor can plan the production
schedule to meet the expected demand.
– When the stock position of the purchaser goes down, the vendor
knowing the position can automatically prepare to deliver the items and
inform the purchaser electronically.
– Such a system ensures for the purchaser and vendor a well coordinated
seller-buyer relationship and both parties gain.

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 Characteristics of E-Commerce

1. Geographic location, abundance of capital or the ownership of the retail

outlets is irrelevant to this type of transaction.
2. Anyone can freely participate in economic activities through e-commerce
over a wide range of sectors. That is, anytime, anywhere, anyone can do e-
commerce.
3. E-commerce allows products to be marketed worldwide, while providing a
wide array of options to the consumers.
4. E-commerce must be scalable and adaptable.
5. It requires security properties such as secrecy, privacy, reliability, and no
repudiation. These are the challenges of e-commerce.
6. Trust and confidence must be established if it is to reach its full potential. E-
commerce can survive only if all involved parties can trust the system.
8. E-commerce should be guided by laws.

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 Three Factors that make E-Commerce
Attractive

• (1) Choice:
– Customers in general enjoy having choices before they decide whether
to buy or what price they are willing to pay for a product.
• (2) Vast selection:
– Online products can be displayed, reviewed, and compared at no cost in
time or funds. This feature makes online shopping much more efficient
than having to visit after store.
• (3) Quick comparison:
– Consumers can quick compare products in terms of price, quality,
shipping terms and so on before making a final choice.

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 Business Models for E-Commerce

• Business model is a way of doing business to sustain it for generating

revenue.
• It is a set of planned activities designed to result in a profit in a marketplace.
• Key Ingredients of a Business Model:
– Value proposition: Why should the customer buy from you?
– Revenue model: How will you earn money?
– Market opportunity: What market space do you intend to serve?
– Competitive environment: Who else occupies you intended market
space?
– Competitive advantage: What special advantages does your firm bring
to the market space?

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 Key Ingredient of Business Model

• Market strategy: How do you plan to promote your products or services?

• Organizational development: What types of organizational structures are
necessary to carry out the business plan?
• Management team: What kinds of experiences and background are
important for the managers to have?

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 Some Business/Revenue Models

There are different business models in e-commerce.

Each model has its own unique features and offerings.

An online business can adopt one business model or more than

one models simultaneously.
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 Storefront model:

The business provides a website

This is a true e-commerce site
with product information, a
that offers products or goods
shopping cart, and an online
for a price.
ordering mechanism.

Users select the products they The rest is up to your supplier.

want to buy and place an order This frees you from managing
through the shopping cart. The inventory, warehousing stock, or
product price is usually fixed, dealing with packaging, but
but can be negotiable. there’s a major caveat.

If your sellers are slow, product

quality is lower than expected,
or there are problems with the
order, it’s on your head (and in
your reviews).

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 Click-and-mortar model:

• A click-and-mortar model shop combines a website with a physical store.

• Wholesaling and warehousing ecommerce businesses require a lot of
investment at the start – you need to manage inventory and stock, keep
track of customer orders and shipping information, and invest in the
warehouse space itself.
• The additional advantages are that it already has an established brand name,
and that it can use its physical store to promote the website.
• Further, users can return unwanted or detective items simply by going to the
physical store rather than mailing it to a website operator.

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46
 Built to order merchant model:
• A manufacturer such as a computer vendor can use this
model by offering goods or services and the ability to order
customized versions.
• The customized product is then assembled individually and
shipped to the customer.
• This model provides added value to consumers and allows the
manufacturer to create only those products that will be sold.

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48
 Subscription-based access model:

• Many service operators provide subscription-based access to their service.

• A visitor pays a fixed fee per month or year in return for unlimited access to
the service. Access beyond a certain limit is subject to a surcharge.
• This model is typical for accessing databases with articles, news, and patterns
as well as online games or adult website.
• However, the viability of this model is doubtful. This model is slowly gaining
acceptance, because many Internet users are reluctant to pay to view
content on the web.

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 Broker model:

• Brokers are market makers.

• As intermediaries, they bring buyers and sellers together and facilitate
transactions between them.
• Those can be business-to-consumer (B2C), business-to-business (B2B), or
consumer-to-consumer (C2C) markets.
• A broker makes money by charging a fee for every facilitated transaction or a
percentage of the price of the transaction.

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51
 Free access model:

• Users are given something free, but with advertisements.

• A free web space provider typically provides advertising banners at the top
or bottom of its sites.
• Electronic greeting cards are sent with a personal message and an
advertisement.
• Since the visitor base is diverse, it is hard to target the right advertisements,
making the revenue low.

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 Virtual community model:

• It is also called a vanity site. A virtual community is a website that attracts a

group of users with a common interest who work together on the site.
• Users share information and make contributions in other ways.
• Since they have contributed to it themselves, users feel highly loyal to the
site and will visit it regularly.
• A specialized type of virtual community is the knowledge network or expert
site, where laymen and experts share expertise.
• These sites operate like a forum. Participants get questioned answered or
raise topics for discussion.

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54
 Infomediary model:

• An infomediary collects, evaluates, and sells information on consumers and

their buying behavior to other parties who want reach those consumers.
• Initially, a visitor is offered something for free, like free hardware or free
Internet access, which allows the infomediary to monitor the visitor’s online
activities.
• The information gathered can be extremely valuable for marketing purposes.
• The infomediary needs to keep track of its users.
• A simple way to achieve this is to require registration for access to the site,
preferably for free.

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