Table of Contents:-
- What is Electronic Commerce?
- Characteristics of Electronic Commerce
- Framework of E-Commerce
- Types of E-Commerce
- Advantages of E-Commerce
- Disadvantages of E-Commerce
What is Electronic Commerce?
Electronic Commerce, commonly known as E-commerce, encompasses various types of transactions involved in commercial activities. It includes organizational and individual activities involving processing and transmitting digitized data such as text, pictures, sound, video, etc.
E-commerce has created a new environment with the assistance of the Internet in business transactions and processing. Here, information about the products they want is directly provided to consumers, and the platform is set for product advertisement. It also facilitates negotiations, orders for raw materials, settlement of financial transactions, etc.
E-commerce refers to all business operations and transactions executed through the Internet and other electronic technologies.
“E-commerce is a virtual business environment in which information moves electronically via Internet related to buying, selling, transportation of goods and services”.
According to P.T. Joseph, “E-Commerce comprises core business processes of buying and selling, goods, services and information over the internet”.
According to Kalakota and Whinston, “Electronic Commerce can be defined from following four perspectives:
1) Communications Perspective: Electronic commerce is the delivery of products, services, information, or payments via telephone lines, computer networks, or any other means.
2) Business Process Perspective: Electronic commerce is the application of technology towards the automation of business transactions and workflows.
3) Service Perspective: Electronic commerce is a tool that addresses the desire of firms, consumers, and management to cut service costs while improving the quality of goods and increasing the speed of service delivery.
4) Online Perspective: Electronic commerce provides the capability of buying and selling products and information on the Internet and other online services.”
Characteristics of Electronic Commerce
The characteristics of electronic commerce are outlined as follows:
1) Global Reach
E-commerce technologies facilitate businesses in reaching customers across geographic boundaries more conveniently and effectively than traditional commerce. Companies are expanding globally, earning greater profits with e-commerce solutions. The potential market size for e-commerce retailers is approximately equal to the size of the online population.
E-commerce technology offers personalization by designing marketing messages according to individual preferences. This involves customizing messages based on customer details like name, interests, and past purchase records. Products or services can be adjusted according to user choices or past buying records.
3) Information Density
Information density refers to the total amount and quality of information available over the Internet to all market participants. E-commerce technologies significantly increase information density, providing better quality information to merchants and consumers. This improvement enhances the timeliness and accuracy of information.
Richness pertains to the complexity and extent of a message, encompassing various forms such as pictures, text, sound, videos, links, and SMS (Short Message Services), enriching commercial activities and experiences.
E-commerce is widespread and available everywhere and at all times. It liberates the free market from physical constraints, allowing consumers to shop from a computer, such as a laptop or desktop, creating what is known as a market space. Ubiquity reduces transaction costs for consumers exploring various products, enabling them to access information anytime and anywhere. Buyers no longer need to expend time and money on travel, saving the cognitive energy required for transactions in a market space.
E-commerce technologies enable two-way communication between customers and sellers, making it an interactive platform. This characteristic sets it apart from the commercial standard technologies of the 20th century.
7) Universal Standards
These are shared standards worldwide, particularly technical Internet standards that support e-commerce. Universal standards allow global connectivity at the same “level,” resulting in lower entry and minimal search costs.
Framework of E-Commerce
The image below shows the generic framework of e-commerce.
Elements of E-Commerce Framework
1) Information Super Highway (I-Way)
The Information Superhighway serves as the foundation for transportation, allowing the transmission of content, also known as 1-Way. The Information Superhighway simplifies the union of content and distribution channels, fostering vast business and cultural growth over the Internet. As regular commerce relies on an interstate highway road network to transport goods, a practical e-commerce application or activity requires a developing 1-Way infrastructure comprising numerous computers, communication networks, and necessary software.
2) Multimedia Content and Network Publishing
In the non-electronic world, various products are stored in distribution warehouses and transported using logistic solutions. In the electronic world, content is transmitted over the Internet through the World Wide Web (WWW), commonly known as the Web. The Web, a system of interlinked documents accessed via the Internet, enables small businesses and individuals to develop content in HTML (Hyper Text Markup Language) and publish it on web servers. Websites allow users to create and publish product information in a distribution centre.
3) Messaging and Information Distribution
Numerous information distribution and messaging technologies provide transparent mechanisms for transferring information content over the network infrastructure layer. This transparency is achieved through software systems implementing Hypertext Transfer Protocol (HTTP), File Transfer Protocol (FTP), and Simple Message Transfer Protocol (SMTP) for exchanging multimedia content like text, pictures, video, and audio.
4) Common Business Services
The standard business services infrastructure offers various techniques to facilitate buying and selling. For successful e-commerce applications, it is essential to make information sources available online to geographically dispersed clients and operate in a transactional environment.
Shared business services infrastructure comprises four elements:
i) Security: This is a significant concern for conducting business on the Internet. Robust website security measures continuously monitor the website for authentication and authorization activities, virus detection and elimination, and the implementation of Intrusion Detection Systems (IDS) and firewalls.
ii) Authentication: This security process verifies the authenticity of the user, with the password being a primary tool for authentication.
iii) Encryption: Due to concerns about attack vulnerability, encryption ensures secure data transmission over the Internet. This technique translates plaintext (unencrypted message) into ciphertext through an encryption function.
iv) Electronic Payment: Businesses use a payment method for online financial exchanges. E-commerce offers various alternatives for making and receiving payments, such as digital cash, e-cheques, credit cards, debit cards, etc. This mechanism processes online financial exchanges between two or more parties, comparable to offline payment methods.
Pillars of E-Commerce Framework
As shown in the image, all e-commerce applications and infrastructures are supported by two main pillars. These are as follows:
1) Public Policy and Privacy Issues
This pillar manages various public policy issues over the network, such as universal access, privacy, trust, equal access, information pricing, and information access.
Privacy issues encompass determining which information is private and who has the right to use internet information. Related laws and certification authorities establish the legal framework for e-commerce.
2) Technical Standards
Technical standards provide a universal format for transferring electronic data over networks received across user interfaces. These standards define the details of information transport protocols, user interfaces, and transaction security protocols.
These standards are essential for:
- Transfer of data across different networks.
- Ensuring compatibility and generalization of different network environments.
Types of E-Commerce
There are several types of e-commerce models which are classified based on the nature of interaction with players. Some of them are as below:
- Business-to-Consumer (B2C)
- Consumer-in-Consumer (C2C)
- Business-to-Business (B2B)
- Business-to-Employee (BZE)
- Consumer-to-Business (C2B)
- Business-to-Government (B2G)
In the B2C e-commerce model, businesses sell products and services directly to individual consumers. All the products and services are offered online through electronic channels, complementing traditional commerce. The Internet serves as an electronic channel. Examples of websites in this category include www.flipkart.com, www.infibeam.com, www.homeshop18.com, and www.amazon.in. Individuals can purchase items such as clothes, mobiles, and electronic products through these websites.
Some of the significant advantages of this model are:
- Eliminates intermediaries.
- Provides a better way to deal with suppliers.
- Offers an opportunity to return purchased items.
- Establishes customer service centres that are physically located.
The image below illustrates a business-to-consumer (B2C) model. Here, ISP means Internet Service Provider.
The Business-to-Business (B2B) e-commerce model describes electronic transactions between businesses, such as manufacturers and wholesalers. The increasing acceptance of B2B e-commerce is attributed to factors like the Internet and the dependence of many business operations on other businesses for the supply of raw materials, utilities, and services. This segment is rapidly developing in e-commerce, allowing companies to check and update purchase orders, invoices, inventory, and shipping status directly through the Internet.
The advantages of the B2B e-commerce model are as follows:
- Reduces inventory cycle time and costs.
- Eliminates manual activities and, therefore, reduces errors.
- Improves supply-chain management among business partners.
- Enables business partners to share relevant information promptly and accurately.
Consumer-to-consumer (C2C) e-commerce is a business model that facilitates transactions of products and services between two consumers. In this e-commerce model, consumers sell products and services directly to other consumers using Internet and Web technologies. An individual customer utilizes classified advertisements to promote various products and services on the web or through online auction sites, such as eBay.com, quickr.com, craigslist.org, and gittigidiyor.com. This model entails lower costs for both buyer and seller customers.
Using this e-commerce model, customers can also advertise and sell their products and services to other employees over the organizational Intranet.
The image below displays the general C2C e-commerce model. An Internet service provider (ISP) is an organization that provides services to users participating in the Internet. Escrow is an electronic middleman in which money is held in trust by an authorized third party until certain agreed conditions are met.
Consumer-to-business (C2B) is an e-commerce model in which individual consumers sell services and products businesses and organisations consume. This model is the opposite of the B2C model.
In this model, individuals establish the price and value of specific services and products. For example, when customers write reviews for a new product or provide a valuable idea for new product development, they create value for the company if it adopts the review or idea. The company can facilitate the C2B model by setting up website discussion forums.
Websites such as www.mobshop.com, www.pazaryerim.com, and www.priceline.com organise C2B transactions.
The B2E model is a business model where businesses provide various services or products to their employees, and the transactions between the business and employees are known as B2E services. This e-commerce model enables companies to deliver products and services to their employees using an intrabusiness network (Intranet). For example, the employee portal forms the B2E model between the company and the employee. Searching for specific information from an extensive database can be time-consuming for an employee. B2E applications provide employees with self-service capabilities, which is crucial in improving business-employee relationships.
The B2G business model encourages transactions between the government and businesses over the electronic network. Numerous activities, such as filing tax returns, public procurement, applying for and issuing commercial licenses, and various other government-related formalities, are conducted by businesses over the Internet.
For example, Classic Shoes Ltd submits its annual tax return to the Income Tax Department via the Internet, following the B2G model.
Advantages of E-Commerce
The advantages of e-commerce can be divided into two categories:
1) Advantages to Customers
i) Quicker Delivery: E-commerce offers consumers more options and ensures quicker delivery of products and services. Some e-commerce companies provide free home delivery services to their consumers.
ii) Global Marketplace: E-commerce creates a global marketplace, allowing consumers to purchase products anywhere in the world according to their needs. According to the World Trade Organization (WTO), “there are no customs duties on products bought and traded globally electronically.” The global marketplace also provides consumers with a vast collection of products and services along with their prices.
iii) More Choices: Online businesses provide consumers with a broader range of choices for purchasing. Before making a purchase, consumers can study the products and features of all major brands.
iv) Anytime Access: Online businesses operate 24/7, 365 days a year, offering constant access for consumers to make transactions and inquiries about any product or service from anywhere in the world. Consumers can purchase products day or night with a single mouse click using Internet connections and a computer.
v) Relevant Information: E-commerce swiftly delivers appropriate and detailed information about products and services to consumers. Consumers can easily compare products and their prices.
vi) Reduced Prices: Products available on websites are priced lower due to decreased stages in the value chain between source and destination. Companies eliminate intermediaries like retail stores, selling products directly to consumers instead of distributing through intermediaries.
2) Advantages to Businesses
i) Low-Cost Advertising
The Internet offers cost-effective advertising compared to traditional newspapers or television. Today, the Internet has become an inexpensive advertising medium firms use for commerce. Various advertising methods include email, banners, pop-ups, streaming video, and audio.
ii) Strategic Benefits
E-commerce-enabled businesses enjoy several strategic benefits as they:
- Easily find errors.
- Lower the cost of telephone calls.
- Reduce delivery time and labour costs.
- Minimize data entry and management expenses.
- Reduce the cost of mail preparation, data entry, and document preparation.
iii) Global Reach
E-commerce-enabled businesses can reach a global audience cheaply. They can send messages worldwide at any time. Since online businesses are globally accessible, e-commerce helps attract new consumers and business clients from anywhere.
iv) Low Barriers to Entry
Small and large firms have opportunities to start and conduct business online. The entry cost for firms to join the Internet is minuscule because they do not need physical space for rent. All businesses online are virtual, eliminating the need for many employees to conduct business.
v) Increased Potential Market Share
Businesses are expanding their market share by making their operations Internet-enabled. Online businesses provide access to international markets at any time.
Disadvantages of E-Commerce
The disadvantages of e-commerce can be divided into the following two categories:
1) Technical Limitations
i) Low Bandwidth: Networks might pose issues in many countries due to low bandwidth.
ii) Not All Customers Have Access to the Internet: Internet access is only sometimes available, so much of the effort made does not reach the consumer. Many potential customers living in remote villages need an Internet access facility.
iii) Lack of Security: Consumers need confidence and trust in e-commerce payment providers. Any fraud, hacking, or forgery can erode the trust of consumers.
iv) Difficulty in Integrating E-Commerce: Integrating e-commerce software or websites with some existing applications and databases can be challenging. Vendors need special web servers and network servers to address integration problems.
2) Non-Technical Limitations
i) Security and Privacy: Major concerns in online businesses revolve around security and privacy. Customers feel hesitant to disclose credit card numbers over the Internet due to security issues such as the theft of credit card information. If consumers need more confidence in the online business, they may refuse to purchase over the Internet.
ii) Lack of Touch and Feel: Consumers may prefer to touch and feel a product before purchasing online. Online businesses need to provide a touch-and-feel experience for clothes and shoes.
iii) Corporate Vulnerability: Online businesses have a high availability of information related to products, prices, catalogues, and more. This information makes websites vulnerable to access by competitors. The process of extracting business intelligence from competitors’ web pages is called web farming.
iv) Legal Issues: When buyers and sellers do not know each other, there is a chance of fraud over the Internet. Hence, there are many legal issues related to e-commerce. Some common legal problems encountered in e-commerce include:
- Software and Copyright Violations
- Credit Card Fraud and Stolen Identities
- Illegal Bargains and Criminal Law
v) Initial Cost: The initial cost to develop an e-commerce website in-house is very high. Hiring qualified staff to maintain and update the e-commerce website may entail a substantial expense. Some companies have opportunities to outsource e-commerce to other companies, but deciding where and how to outsource is challenging.
vi) Lack of Trust and User Resistance: Paper transactions and face-to-face contact are crucial in business deals and transactions, as they are closely tied to trust. Therefore, transitioning from physical to online stores can be challenging for consumers.
vii) Customer Relations Problems: Organizations need loyal customers to sustain their online business long-term. Online companies can only thrive with loyal customers in today’s competitive business environment.