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History of E-Commerce

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DOI: 10.4018/9781599049434.ch001

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 Chapter l.l
History of E-Commerce
Yan Tian
University of Missouri - St. Louis, USA

Concetta Stewart
Temple University, USA

INTRODUCTION Internet-related products or services (Costa,

2001). Therefore, pre-Internet e-commerce, as
E-commerce orelectronic commerce, also known will be detailed in the following section, cannot
as e-business, refers to the transaction of goods be called Internet economy. On the other hand,
and services through electronic communications. some activities, such as building Internet con-
Although the general public has become familiar nections for commercial purposes, are a'part of
with e-commerce only in the last decade or so, Internet economy, but they are not necessarily
e-commerce has actually been around for over 30 e-cornmerce. Digital economy is based on digital
years. There are two basic types of e-commerce: technologies such as computer, software, and digi-
business-to-business (B2B) and business-to- tal networks. In most cases, digital economy is the
consumer (B2C). In B2B, companies conduct same as e-commerce. However, not all activities
business with their suppliers, distributors, and in the digitaleconomy are e-commerce activities.
other partners through electronic networks. In For example, purchasing computer gear from a
B2C, companies sell products and services to storefrontretaileris notan activity ofe-commerce,
consumers. Although B2C is the better known to although it certainly is a key component of the
the general public, B2B is the form that actually digital economy. Hence, e-commerce, Internet
dominates e-commerce in terms of revenue.r economy, and digital economy are closely related
The concept of e-commerce is related to no- but have different concepts.
tions of Internet economy and digital economy. E-commercehas been perhaps one ofthemost
All these concepts relate to the use of new in- prevalent terms in this digital era. Although e-
formation and communication technologies for commerce was once looked upon simply as an
economic activities, but with different focuses. expressway to wealth, it has actually transformed
Internet economy refers to the economic activi- the way people conduct business. An historical
ties that generate revenue from the Internet or analysis ofe-commerce will provide insights into

Copyright @ 2008, lGl Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
 History of E-Commerce

the evolution ofthe application of information

and 1983, the Internet Protocol(lP) became the only
communication technologies in the comlnercial
approved waytotransmitdataon theNet, enabling
arena. Furthermore, an analysis of the evolution all cornputers to exchauge information equally.
of e-commerce in the past as well as its present In 1986, the National Science Foundation (NSF),
state will enable us to project future trencls in a government agency, launched the NSFNE!
e-commerce. with the purpose of providing high-speed com_
munication links between major supercomputer
centers across the United States. The backbone
THE INFANCY OF E-COMMERGE: of the NSFNET then became the cornerstone of
BEFORE 1995 the TCP/IP-based Internet (Anthes, 1994).
By the end ofthe 1980s, the Internet had still
E-commerce was made possible by the develop_ maintained its noncommercial nature, and all of
ment ofelectronic data interchange (EDI), the ex_ its networks were based on the free use of the
change ofbusiness documents from one computer NSFNET backbone, directly or indirectly. The
to another in a standard format. EDI originated in prirnary users wer.e still scientists and engineers
the lnid-1960s, when cornpanies intransportation working forthe government or for universities. As
and some retail industries were attempting to cre_ amatteroffact, academics orresearcherswerethe
ate "paperless" offi ces. In the rnid- 1 970s, EDI was only ones capable ofusing the Internet, because a
form al i zed by the Accred ited Standard s Com m it_ soph isticated understanding of computer science
tee of industry representatives, and more varied and a high levelofcomputer skills were necessary
companies began to adopt EDI through the 1970s for Internet use at that time (Eccleson, 1999).
and 1980s. As the first generation ofe-commerce, It was the development of a graphical user
EDI al lowed compan ies to exchange information, interface (GUI) and the navigability ofthe World
place orders, and conduct electronic funds transfer Wide Web (WWW) thar changed the nature of
through computers (Sawanibi, 2001). However, Internet use. In theearly 1990s, the creation ofthe
the diffusion of EDI was slow. By the late 1990s, hypertext rnarkup language (HTML), with speci_
less than one percent ofcompanies in Europe and fications for uniform resource locators (URLs)
in the United States had adopted EDI (Tirnmers, enabled the Web to evolve into the environment
1999). The huge expense for getting connected that we know today. The Internet was therefore
to an EDI network and some technicalproblerns taken o'out of the realm of technical mystique and
limited the diffusion of EDI. into commorl usage" as it became usable forordi_
The second generation of e-commerce is nary people without sophisticated understanding
chancterized by the transaction of goods and of computer science and techniques (Eccleson,
services through the Internet, which started as 1999, p.70). Hence, with the increasing number
a research tool, but has generally evolved into a of Internet users, the Internet became attractive
commercial tool. The inception ofthe Internetcan to the business world.
be traced back to the 1960s, when the Advanced Perhaps the most significant milestone, how_
Research Projects Agency Computer Network ever, came in 1991, when NSFNET decicled to
(ARPANET), the precursor to the Internet, was lift cornmercial restrictions on the use of the
established for research in h igh technology areas. network, and thereby opened up opportunities
The nodes of ARPANET increased from 4 in for e-commerce. Advanced Network & Services
1969 to 15 in 1971. The termÍe ternet actually did (ANS), established by IBM, MCI Commun ications
not come into use until 1982, when the number Corp., and MeritNetwork, Inc., provided Internet
of hosts on the ARPANET rose to 213. Then, in connection to commercial users without govern_

2
History of E-Commerce

ment restrictions on commercial traffic online. From I 995 to 1999, many compan ies bu ilttheir
In addition, a portion of the money from these Web presence and began to conduct transactions
commercial applications was used to upgrade online. ln 1996, e-comlnerce transactions in the
the network infrastructure. In 1993, Mosaic, one United States resulted in $707 million in revenue,
of the first Internet browsers, was released, and which increased to $2.6 billion in 1997, and $5.8
with Mosaic's graphical interface and rapid pro- billion in 1998 (Fellenstein & Wood, pp. 9-10).
liferation, the I nternet became more user-friendly From October 1998 to April 2000, morethan 300
and visually appealing. One year later, Netscape Internet companies made initial public offerings
released its Navigator browser, hand in so doing (IPOs; Cassi dy,2002, p. 192). There were approxi-
ushered in the golden age of e-commerce. mately 600,000 e-commerce sites in the United
States by the end of 2000 (Dholakia et a1.,2002,
p. 5). Advertising on the Internet also increased
THE "GOLDEN AGE" OF from $267 million in 1996 to $907 million in 1997
E-COMMERCE: FROM 1995 TO and to $3 billion in 1999. The sales of Amazon
1999 increased from less than $16 million in 1996 to
$1.6 billion in 1999, and the daily sales of Dell
In 1995,ANS was sold to America Online, which increased from under $1 rnillion to $40 million
marked "a transition of backbone infrastructure in less than 3 years (Costa,2007, p. 34).
from federal funding to full private commercial- The growth of e-commerce coincided with
izatiott operation of the Internet" (Kim, 1998, p. the changes in the regulation of the lnternet.
283). With NSF's subsidy removed, private com- Throughout the mid-1980s to 1995, the Internet's
panies took a leading role on the Internet (Kim, main backbone was comprised by the NSFnet, a
1998). Commercial use of the Internet gradually wide-area network developed under the auspices
became the dominant pattern of Internet use oftheNational Science Foundation (NSF). N SFnet
in the mid-1990s. The term e-commerce came replaced ARPANETasthe main government net-
into popular use in 1995, signifying the rapid work linking universities and research facilities.
development of commercial applications of the In I995, however, theNSF dismantledNSFnetand
Internet. replaced it with a commercial Internet backbone.
Also in 1995, Amazon.com, the world's largest In that process, the National Science Foundation
online bookstore, was launched. Just I year later, (NSF) decided to award a monopoly contract to
it became a multimillion dollar business with a a partnership between the lnforrnation Sciences
database of l.l million books searchable by title, Institute (ISI) andNetwork Solutions, Inc., to oper-
author, subject, or keyword, and favored by both ate ìP numbers and domain registration services
publishers and customers. Two months after from 1992 to 1997. At the same time, the NSF
Amazon's debut, eBay, the world's trst online implemented a new backbone called very high-
auction site, was launched. ln 1996, Dell began speed BackboneNetwork Service (vBNS), which
to sell personal computers directly to consum- served as testing ground for the next generation
a

ers on the Internet and, in 1997,fhe commercial of Internet technologies.

domain (.com) replaced the educational domain ln 1996, a blue ribbon international panel
(.edu) as the largest in use (Kim, 1998). The formed by the Internet Society (ISOC) took over
Internet became the fastest growing technology the root server, which is a domain name system
in economic history. lnvestors, businesses, and (DNS) name server that points to all the top-level
consumers alike were attracted by e-commerce domains, and the International Ad Hoc Com-
during that period. mittee (IAHC) was charted with a plan to form

3
 History of E-Commerce

a monopoly registry administration of the DNS p. 105). In the San Francisco Bay Area, 80% of
on a nonprofit basis. While DNS was looked at as dot-coms went out of business in 2000 and 2001,
"public resource" by some researchers then (Par, which led to a loss of 30,000.iobs directly related
2003,p.131), others believed that multiple, com- to the Internet (Nevaer, 2002, p. xü).
peting groups co-owned this resource (Mueller, The dot-com crash in 2000 and 2001 has
1999). In 1997, as the NSF decided to terminate been attributed to the unrealistic expectations
its contract with Network Solutions, the IAHC for e-commerce and Internet companies. The
collapsed. stocks for Internet companies were overvalued.
With the increasing pressure of commercial Exaggerated projections by Silicon Valley, Wall
interests over trademark "squatting," (Par, 2003, Street, journalists, and government officers all
p. 131), the U.S. Department of Commerce issued contributedto the inflation ofthe dot-combubble,
the White Paper in 1997 to transfer the manage- The bubble finally burst, which meant decreases
ment of the DNS to a new private, not-for-profit in investment, a slow-down in economic and
corporation. In 1998 the lnternet Corporation for productivity growth, and decreasing corporate
Assigned Names and Numbers (ICANN) was revenues (Cassidy, 2002).
formed, which represented a "substantial shift in Ironically, despite the bankruptcy of many
power to control the Internet from government to Internet companies, e-commerce sales actually
private industry" (Fuller, 2001). ICANN rnade de- increased in the year 2000 and 2001. According
cisions such as allowin g more cornpet ition among to the Departrnent of Com rnerce (200 1 ), esti rnated
registrars and instituting mandatory arbitration for retail e-commerce sales in the fourth quarter of
trademark claims during its first two years of life, 1999 were $5.27 billion, increasing to $8.88 billion
which had a significant irnpact on the development in the fourth quarter of 2000 and to $10.04 billion
of e-commerce during that period. in the fourth quarter of 2001. The estimated total
e-commerce sales for 2001 were $32.6 billion, a
19.3%o increase compared with the total e-com-
THE BURST OF THE DOT.COM rnerce sales for2000. The increase ofe-colrtnerce
BUBBLE: 2000 AND 2001 sales during the dot-com crash suggests that al-
though e-cornmerce and lnternet companies may
The "gold rush" of the late 1990s came to be have been overvalued in the 1990s, e-commerce
known as the "dot-com bubble," and 2000 and itself was still viable and growing.
2001 saw the bursting ofthat bubble. From March
l0 to April 14,2000,the NASDAQ, the high-tech
stock exchange, dropped 34.2yr, and the Dow THE RESURGENCE OF
Jones Composite Internet Index dropped 53.6%. E.COMMERCE:
The stock price for all the 20 leading Internet 2OO2 TO THE PRESENT
stocks dropped, including Amazon.com by 29.9Yo,
eBay by 27.gyo,Internet Capital by 72.1o/o, and E-commerce continued to grow after the burst of
Ver i S i g n by 59.2% (C as s idy, 20 02, pp. 292 -293). thedot-com bubble. Somelnternetcompaniesthat
This crash quickly cooledthe e-commerce frenzy. survived the 2000 and 2001 crash have become
Many Internet companies were forced to cancel very successful. For example, Amazon.com has
their IPOs, and companies such as Boo.com and won some ofhighest customer satisfaction scores
Value America had to file for bankruptcy (Cas- in the history of retail industry. eBay has signifi-
sidy, 2002). According to the Forlune magazine, cant sales in second-hand cars, which were once
384 dot-coms "passed on" in 2001 (Adarns,2004, looked upon as inappropriate commodities for

4
History of E-Commerce

online transactions. Wal-Mart, the world's largest related to the information technology industry
store-front retailer, conducts all the business with and music recording industry, are working on
suppliersthrough a B2B network(Zå e Economist, protecting intel lectual property ofd igital products
200 4). Esti mated total e-commerce sales reached (Sclrneider, 2004).
$45.6millionfor2002 and $54.9 billion for 2003 Controversy has also emerged regarding the
(Department of Commerce, 2002, 2003). This collection of sales-tax revellue in this new busi-
trend continued in 2004, with e-commerce sales ness environment. E-commerce is believed to
for the third quarter of 2004 estimated to have contribute to the loss ofrevenue ofstate and local
increased 2l.5yo from the same period in 2003 government, because states cannot effectively col-
(Department of Comme rce, 2004). lect sales and use taxes on transactions through
However, e-commerce still does not represent the Internet. Organizations such as the National
alarge proportion of the economy. E-commerce Governors Association and National Conference
sales are less than 2o/o of the total sales in the of State Legislatures have been working under
Un ited States (Department of Commer ce, 200 4). the Streamlined Sales and Use Tax Agreement
Althoughthere is plenty ofopportunity for growth, to create a uniform system to administer and
the development ofe-commerce is lirnited by fac- collect remote sales taxes (Government Finance
tors such as universal access, privacy and security Review, 2004). All of these examples illustrate
concerns, and Internet fraud. These limitations the array of issues for the regulation of e-com-
must be adequately addressed to ensure strong merce. However, withthe challenges e-commerce
growth in e-commerce. presents to traditional legal jurisdiction, privacy
With the resurgence of e-commerce, regula- and security oftransactions, tariffs, and taxation
tion of e-commerce deserves special attention. (Cordy, 2003), careful examination of laws and
Consumer protection, user agreements, contracts, policies will be needed to assure the growth of
and privacy in e-commerce all present new e-commerce.
concerns regarding regulation of commercial
activities (Füstös &. L6pez, 2004), particularly
as e-commerce contributes to the globalization FUTURE TRENDS IN E-COMMERCE
of economic activity. For example, whereas the
European Union emphasizes consumer's rights, M-commerce, or mobile commerce, is an impor-
the United States is more focused on protecting tant growth area for e-commerce. M-commerce
freedom of expression and intellectual property refers to the process of using mobile devices such
(Füstös &. López, 2004).Nevertheless, laws such as mobile phones or wireless PDAs to conduct
as the U. S. Anticybersquatting Consumer Protec- business transactions. With 1.5 billion mobile
tion Act (ACPA) and the Electronic Signature in users in the world, and 140 million in the United
Global and National Commerce Act have been States (Cellular Online, 2004), m-commerce is
passed to protect the flow of commerce in cyber- becoming a significant aspect of e-commerce.
space (Füstö s &. López, 2004; Sch ne ider, 20 0 4). With m-commerce, the nature of mobile de-
To protect intellectual property in e-commerce, vices changes from pure communication tools
the World Intellectual Property Association to transactional tools. M-commerce has already
(WIPO) developed the Uniform Domain Name found important applications in industries such
Dispute Resolution (UNDR) polity to help settle as financial management, travel services, and
disputes regarding domain names. In addition, entertain ment (Schone, 200 4). M- corn merce w i I I
organizations such as the Secure Digital Music be adopted by an increasing numberof industries,
Initiative (SDMI), with mernbers of companies given its capacityto facilitate interactions between

5
 History of E-Commerce

companies and consumers, create mobile virtual lnerce, future research will consider implications
malls, and tailor products and services according of advancements in global telecommunications,
to customers' purchasing habits in real time. It mobile communications as well as the influence
is estimated by ARC Group that approximately of cross-cultural content and practices.
546 million mobile device users will spend ap-
proximately $40 billion on m-commerceby2007
(Schone, 2004). CONCLUSION
The globalizing economy presents additional
opportun ities for e-com merce. The global I nternet Despite the dramatic rise and fallof Internetcom-
population is more diversified than ever before. panies, e-commerce has demonstrated continu-
With the rapid increase of Internet population in ous growth in sales. E-commerce has significant
countries other than the United States, e-com- irnplications for the companies and customers
merce on a global scale becomes necessary as involved as well as society at large. For cornpa-
well as feasible. Leading companies in e-com- nies, e-commerce can improve efûciency and
merce have realized this. EBay, for exarnple, built productivity. Furthermore, e-commerce allows
a Chinese service, which has become the biggest employees to have more access to information
e-commerce site in China (The Economist,2004). and serv ices, wh ich can help to maintain a healthy
Another example is Amazon.com, which hired corporate culture. For customers, e-cotnmerce
ThinkAmerican, a "cultural portal," to translate provides a very convenient way to transact many
and customize its Japanese Web pages to comport kinds of business 24 hours a day,7 days a week.
with the Japanese culture. As leading e-commerce For society, e-commerce can help to accelerate
companies in the United States are extending their economic growth and opportunities, but at
their business to overseas markets, e-commerce the same time may pose challenges and colÌcerns
is thriving in many countries around the world. in terms of surveillance and privacy.
According to Forrester Research, global e-com- The burst ofthe dot-com bubble may actually
merce would reach $6.8 trillion by 2004, with have brought about a more rational and sustainable
North America representing 509% (the United approach to e-commerce. However, as e-cotr1-
States, 47þ, AsialPacific representing 24.3o/o, merce grows, we will continue to witness changes
Europe representing 22.6yo, and Latin America in the way people conceive of organizations,
representing 1.2% (Global Reach, 2004). Forrester transactions, and commun ications with a dramatic
also predictedthat, althoughthe United Statesand rethinking of time and space considerations in
North America are currently leading in online economic activities.
transactions, Asia and European nations would
become more active in e-commerce in the coming
years. With the Internet's inherent "globality,,, REFERENCES
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Cellular Online. (2004/ Global mobile stats. Füstös, &.López,L. M. (2004). Legalaspects
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Dholakia, N., Fritz, W., Dholakia, R. R., &
Mundorf, N. (2002). Online marketing: An in- Nevaer, L. E. V. Q002\ The dot-com debate and
troduction to the e-commerce revolution. In N. the return to reason. Westport, CT: Quorum
Dholakia, V/. Fritz, R. R. Dholakia,&N. Mundorf Books.
(Eds.), Global e- commerce and online marketing:
Paq D. (2003). Internet governance in transition
IYatching the evolut ion (pp. I - I 3).Westport, CT:
Ilho is the mater of this domain? Lanþam, MD
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Eccleson, P. (1999). New technology briefing: An
Sawabini, S. (2001). EDI and the lnternet: Can
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law.duke.edu/jou rnals/d lt r I articlesl2Ù0 I dltr0002.

html

7
 History of E-Commerce

KEY TERMS EDI (Electronic Data Interchange): Ex-

change of business documents through computer
Digital Economy: Economy based on digital networks in a standard format. It was the first
technologies such as computer, software, and generation ofe-commerce, applied in B2B trans-
digital networks. actions before the availability of the Internet in
its present form.
Dot-Com Bubble: The exaggerated enthusi-
asm in Internet companies with the overvaluation Internet Economy: Economy with revenues
of high-technology stocks in the late 1990s. from the Internet or Internet-related products or
services.
Dot-Com Company: A company that con-
ducts its primary business on the Internet. It is M-Commerce (Mobile Electronic Com-
called dot-com company because the company's merce): Using mobile devices (e.g., cell phones
URL ends with ".com." and PDAs) to conduct business transactions.

Dot-Com Crash: The stock market crash of

Internet companies in 2000 and 2001, many of ENDNOTE
which failed during the crash. Those companies
were overvalued before the crash. Most studies classify e-comlnerce into two
categories: B2B and B2C. However, some
E-Commerce (Electronic Commerce): The researchers use a four-type categorization
transaction of goods and services through elec- ofe-commerce: B2B, BzC,C2B (e.g., guru.
tronic communications. E-commerce has two com), and C2C (e.g., eBÐ. See Dholakia,
primary forms: B2B (business to business) and Fritz, Dholakia, and Mundorf (2002,p.4).
B2C (business to consumer).

This workwas previously published in Encyclopedia of E-Commerce, E-Government, and Mobile Commerce, edited b¡f M.
Khosrow-Pour, pp. 559-564, copyright 2006 by Information Science Reference, formerly known as ldea Group Reference (an
imprint of IGI Global).

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