Chapter 1.

BASICS AND DEFINITIONS

Learning objectives
In this chapter, student should be able to:
1. explained e-commerce and related concepts;
2. identified how the Internet has enabled e-commerce;
3. enumerated the typical categories of making business digitally;
4. discussed the advantages and disadvantages of digital business,
5. mastered the technical and economical challenges when doing business
electronically.

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 enables the comprehensive digital execution of business processes between

suppliers and their customers via global public and private networks.

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
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.” (Wikipedia 2015)

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)

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)

E-Commerce Defined Comprehensively

To come to a final definition of E-Commerce let us start with some constituent attributes
of E-Commerce:

1. Digitalization of business
 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.
 The comprehensive usage of ICT has been enabled by some technologies and
technical standards, which have been accepted globally.

2. Focus on business processes

 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.
 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.
 We increase the speed of business processes. Additional potentials can be
realized with the coupling of processes between different organizations.
 We increase the economic efficiency of business processes, again through
coupling of business processes at the boundaries of the business partners.

3. Usage of a global network

 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.
 Global networks allow the exchange of information without any restrictions in
time and independently from any geographical distances.
 We “know” (means: assume) that the Internet is always up and running
(7·24h).

4. New potentials and opportunities for cooperation

 More or less independent persons and/or organizations work together.
 Business actors can come together whenever they want it or whenever there
is a need.

These considerations lead to our final definition (Turban et al 2015, p. 7):

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.
E-COMMERCE WITH THE “5-C-MODEL”

Another approach to define and explain, what E-Commerce is, comes from the so-called
5-C-model (Zwass 2014). It defines E-Commerce by five activity domains whose
denominations start with the letter “C”:

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

ADDITIONAL TERMS

M-Commerce (Mobile Commerce)

M-Commerce (Mohapatra 2013, pp. 81–82) 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 (Chakravarty 2014, p. 115) 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)

The big encyclopaedia Wikipedia says (search as of October 26, 2015) (Xu 2014, pp. 102–
105):

“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)

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 (Mohapatra 2013, pp. 10–12).

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.

2. BUSINESS MODELS RELATED TO E-COMMERCE

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 (ten Hompel et al 2015; Marks & Lozano 2010).

This list describes a great variety of Internet-based business models. However, it will not
be a complete compilation because with new and innovative technologies new business
ideas will come up and lead to new and additional offerings.

ADVANTAGES AND DISADVANTAGES OF E-COMMERCE

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

 Flexible shopping hours (7∙24h)
  No waiting queues (if net is available and software appropriately designed)
 Shopping at home (we don’t have to leave our apartment, refuel our car or buy a
subway ticket, look for a parking place, etc.)
 Individual needs can be covered (if customization is offered)
 Global offers, more competition, pressure on prices

Advantages for the provider

 Better customer service can be offered
 Fast communication with customer
 New customer potential through global visibility
 No (traditional) intermediaries, who take away margins

Disadvantages for the customer

 Security risks:
• Data theft (e.g. stealing account or credit card numbers)
• Identity theft (acting under our name or user identity)
• Abuse (e.g. third person orders goods with our identity, gets them delivered
and we have to pay for it)
 Crime:
• Bogus firm (firm does not really exist)
• 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?)
Disadvantages for the provider
 Higher logistics cost (goods have to be sent to the customer’s location)
 Anonymity of customers (how to make targeted advertisements?)