E-Commerce: Another Dimension of Business


E-Commerce: A New Dimension To Business

Ecommerce is changing the traditionally accepted economic practices and making competition even fiercer than it has ever been in the past. As the internet opens up larger markets to take advantage of, more and more flexible competitors are entering the market, all offering better priced value propositions in order to steal market share.The business parameters have changed and so have the risks & payoffs.

E-commerce is becoming critical in three dimensions: customer-to-customer business interactions, intra-business interactions and B2B interactions. In C2b dimension, e-commerce is enabling the customers to have an increasing say in what products are made, how products are made and how services are delivered.E-commerce is also a catalyst for dramatic changes in internal organizational functioning as evidenced by the rapid proliferation of intranets.

HIstory

Over the last 30 years, the definition of Electronic Commerce has changed. Initially, in the late 1970's, Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT) were used as the basic technology to facilitate electronic commercial transactions. This was what electronic commerce originally meant, the use of technological innovations like EDIs and EFTs in doing commercial businesses electronically. EDIs and EFTs allowed businesses to electronic sending of commercial documents such as purchase orders or invoices.

In 1979, an English inventor named Michael Aldrich invented online shopping. He did this by connecting a customized 26-inch color domestic television to a computer with real time transaction processing system through a domestic telephone line.

During the 1980's, forms of electronic commerce such as credit cards, Automated Teller machines (ATM) and telephone banking grew and were accepted. The Airline Reservation System typified by Savre in the USA and Travicom in the United Kingdom was also considered another form of e-commerce. Curiously, online shopping has been present even before IBM, Microsoft, Apple Inc. and the Internet. In the mid-1980's, CompuServe, one of the first popular networking services for home PC users, which provide tools like e-mail, message boards and chat rooms, added a service called Electronic Mall. In the Electronic Mall, users could purchase items directly form 110 online dealers. While this service did not succeed, we know it today as one of the first examples of e-commerce.

In the year 1990, at the European Organization for Nuclear research (CERN), Tim Berners-Lee, a researcher, proposed hypertext-based web information that a user can explore using s simple interface called a browser. The researcher called it the World Wide Web. Furthermore, in the year 1991, Web-based e-commerce emerged and became more alive due to the lifting of the ban on commercial business operating over the Internet by the National Science Foundation. In 1993, Marc Andreesen introduced the first widely distributed web browser called Mosaic at the National Center for Supercomputing Applications (NCSA). In 1994, Netscape 1.0's release included Secure Socket Layer (SSL), an important security protocol that encrypts messages in an online transaction, which includes both the sending and receiving side. One of the functions of SSL is to ensure encryption of personal information such as names, addresses and credit card numbers as they pass over the Internet.

The first third-party services for processing online credit card sales began to appear in the years 1994 and 1995. Two of the most popular among these third-party services were First Virtual and CyberCash. Also in 1995, a company called Verisign began developing digital IDs, or certificates, that verified the identity of online businesses. Before long, Verisign shifted its focus from verifying the identity of online businesses to certifying that the e-commerce servers of a particular web site were properly encrypted and secure.

How ecommerce is adding value to people?

With the globalization, flood gates have opened for the companies who bring in rich experience and heritage in form of technological advanced products across the borders.With rising in purchasing power ,more people are lured by the big brands and extensive products.With passage of time, comfort is playing the main role. With more and more people flocking to the malls and outlets, problems like parking is inevitable. Here comes Ecommerce for rescue.With websites like ebay,amazon for online shopping, makemytrip, cleartrip for buying tickets,booking taxis/hotels,people can now buy anything form anywhere.

Ecommerce has given banking industry a new domain. With core banking solutions,people can now transfer or receive funds from any part of the world. Gone are the days when a father in New Delhi wanted to deposit his son's college fees in Orissa has to go physically to Orissa and deposit the fees.With EFT,he can do so with the click.

one are the days when a guy in America could not send his girlfrind a box of chocolates on Valentine's day. With ecommerce, he can do so in few seconds.

Websites like makemytrip.com has revolutionize the whole travel industry. Who would have though of booking tickets online for the flight as per wish. Who would have though that one can not only book online tickets but also taxi and hotels .Yes, this is possible and only through e-commerce.

With e-commerce students can now purchase books online thereby averting the physical copy.This is having a huge impact on environment,only in positive way.With less papers,means less cutting of trees.

E-Bay

A company that has emerged unscathed from the recent dot-com bust with profits soaring to almost 400% and revenues doubling in the past one year. It has transformed auctions that were limited to garage sales and flea markets into highly evolved e-market places. Selling just about anything, from antiques and jewelry to computers, automobiles and even auto insurance, it has 29.7 million registered users today.

Adopting an amazing and unique culture, where buyers and sellers of all items are allowed to post their comments online, where credit-card payment facilities are secure and easy, the company projects a trustworthy and reliable image.

Apart from bidding, certain high quality goods can be sold at prices fixed by the seller. This site also offers

professional services for all kinds of business needs. A widespread global reach makes its easy for a buyer in Hong Kong to bid and buy a product from a seller in Paris while the regional sites in North America are able to offer hard to ship merchandise.

Person-to-person trading and a barter economy have established the company on a secure B2B and B2C platform. Other companies like Yahoo! and Excite have been quick to catch on and incorporate auctions into their sites. Priceline.com, a site that offers airline tickets on discount has begun experimenting quite successfully with this business model.

To summarize, their business model can be elucidated thus:

• Automation of traditional methods of selling unique items

• Reliability in mode of payments

• Customer friendly company

• Professional services in addition to just plain selling of goods

• Global reach

• Regional diversification

• Successful advertising

In the below section we will see how e-commerce shaped the business mantras in different sectors.

HOMESTORE.COM

Statistics have revealed that realty sites account for about 9.6% of all online visitors. A Company that has dominated the real estate field with 3.28 million customers in January 2001 and listed among the Fortune top e-50. It registered a growth of 252% at one stage.

Homestore.com allows prospective buyers to review properties before buying. Is that all? No, they also offer financial advice, online loans, and buyer's guides to homes and household items, home improvement tips, remodeling, and safety and security aspects. Useful advice when moving home and tips on resettling has ensured user satisfaction to the core.

Their main revenue came in from subscriptions (52%) and the remaining from advertising. As a subscription site they picked a specific topic which a segment of the population would be passionate about and marketed their services through strategic advertising.

Subscription sites that allow users access to a regularly updated online database of any kind for a fee are fast evolving into healthy and strong e-businesses. Why have they become so popular? Yes, free stuff is available anywhere on the Internet, but most of it tends to be disorganized and chaotic. This makes customized information worth paying for.

Useful tips for a wannabe subscription site:

• Pick a specific target that niche users may be passionate about

• Market the site through banner ads and direct marketing (newsletters and e-mail) that offer a few tantalizing freebies regularly

• Offer the complete content to members only

ORACLE

This software and service provider entered the digitized world only in 1998, and metamorphosed into a digital pioneer in the span of two years. Innovative products and services and integration of these services have brought them into the forefront of web innovation today.

Products like Biz Online Initiative that deliver simple and complete online services and a host of other tools that customers require in setting up an e-business have made them a one stop shop for e-biz today. Their built-in self-service system for customers, employees and suppliers improved productivity and accuracy and brought down costs by 100's of millions of dollars. Consulting services with major firms like Sun Professional Systems have established their reliability with customers.

Their business formula:

• Innovative products and packages

• Integration of internal processes

• Exemplary customer service - a user friendly web site that connects customers easily

• Fast online e-business services

• Expert consultancy services

Another company in this league is Exodus Communications, an Internet data center that offers a range of web hosting services, bandwidth on demand, security monitoring. Their servers host leading web sites like Yahoo!, e-Bay and Merril Lynch. They allow these firms to deliver content and applications online round the clock without fail.

35% of their revenue comes from a very successful e-business consulting firm whom they have partnered with (Sapient). They are expanding from 19 data centers to 34 data centers this year.

CISCO

Cisco develops switches and routers for Local Area Networks (LAN) and Wireless Area Networks (WAN) and the related software. They have become the worldwide leaders in networking for the Internet today. 90% of their sales are conducted over the Internet. They offer expertise in planning and executing Internet enabled solutions.

The company has grown in the past 7 years with 71 acquisitions to its credit, the latest being its investments in an optical equipment company and speech recognition software makers. Their business model could be termed an acquisition one!

AMAZON.COM

The customer is King here! Amazon pampers their customers, tracks their tastes and uses this information to create a unique customer experience. This e-tailer cultivates relationships that lead to customers liking and trusting them. This kind of service surpasses the most brilliant technology in use today. Amazon brought in the world of successful one-to-one marketing, a personal touch from another era.

Recently though, they have suffered heavy losses, proving that any successful e-business strategy will survive provided it is based on a solid brick and mortar foundation, a la Barnes and Noble, another famous online bookseller. Although barnesandnoble.com and Barnes the Noble Ltd. are run separately, a customer tends to associate trust and comfort in a known and established brand.

To summarize, exemplary customer service, successful online advertising and special discounted offers made Amazon and books synonymous terms today.

DOUBLECLICK.COM

This Fortune e-50 company offers a collection of premium sites for custom ad-buys and sponsorships in various fields - Business, automobiles, entertainment, technology, travel and health. They help markets build brands, increase sales, maximize revenue and build one-to-one relationships with their customers. They offer agencies plans to manage online campaigns.

Their direct marketing strategies use customer data to refine marketing messages and increase investment returns. One of their divisions, Abacus is one of the largest databases of buyer behavior in about 90 million households in the United States itself. Another division, www.diameter.net conducts online research to evaluate and understand online campaigns and strategies. Some of their clients include www.macromedia.com, www.nasdaq.com, www.networldsolutions.com and www.palm.net.

E-commerce & its increasing role in Banking & Finance

Electronic commerce is associated with IT as an enabler, facilitator, and even inhibitor of business activities both within and among all types of organizations .

It is thus creating enormous interest in the world of IT, banking and finance as well as many other industries. There is little doubt that growth in this area will continue as more organizations join in the fun, establishing and cultivating business relationships, performing business transactions, distributing knowledge, and implementing competitive strategy. Corporate life, particularly in America, is being transformed by the Internet. Banks and financial firms are currently operating in such a new business environment, and they are responding to the changes in myriad ways.

Banks and financial firms are sailing into new water that holds both promises and dangers. On one hand they have the know-how specific to banking and financial, and for the large players, they enjoy the trust of their customers. But they are burdened with legacy systems consisting of their management structures, reward systems and computer systems. They would certainly have to prepare themselves properly for the cut and thrust of life in the brave new world.

ADOPTING THE THEORY AND PRACTICE OF E-COMMERCE

The Internet as a technological platform is to financial transaction what money as a common medium of exchange is to the economy. To get an idea of the convenience made possible by e-banking, just consider the role of money in economic transactions. Some features of the convenience of e-banking are already here while more aspects can be expected.

As customers we are witnessing these features before our nose as banks adopt the Internet infrastructure and business practices of e-commerce. Many of us have direct experience with electronic banking, for example Internet bank and e-brokerage, and have seen the disappearance of some brick-and-mortar branches of our familiar banks. The beauty of Internet banking lies in its low cost, convenience and availability. The commercial use of the 128-bit encryption opens the way for secure on-line financial transaction. The integrated technology enables banks and financial companies to offer services with the following qualities: 24-hour, seven-days-a-week availability, convenience, fast delivery, customer focus and personal service. Banks can reduce the time taken to approve mortgage application from weeks to hours. Brokerage practices have been transformed too. Witness the reduction in the size of average transaction, substantial reductions in fees, use of decimals in prices quoted in New York Stock Exchange, and increased competition between different stock exchanges. With the Internet, individual investors have a very cheap and convenient means to access information about the performance of firms listed on the stock exchange.

While technology offers new opportunities to banks, it also brings new challenge - non-banks have begun to integrate financial functions into their online offerings, and the competition among banks has intensified because of increased reach and transparency of online offerings. Below we look at three ways banks have responded to the new challenges by continuing the past practices of using IT, and by learning to adopt e-commerce ideas from their counterparts in the non-bank sectors.

Financial Services Portal and Bundling of Information Products

By learning from how firms make use of IT, especially the Internet, e-banking researchers have put forward some interesting ideas which are essentially derived from practice of e-commerce. Here we go through briefly two proposals, namely to create a kind of portal of financial services, and to bundle information products just like publishers bundle their electronic magazines or academic journals.

Until recently, it is expensive to design a flexible investment portfolio that is tailored to the needs of individual investors. Only big institutional investors can afford the fees to have securities selected specially for them. With e-commerce technology it is possible to design and deliver the benefits of flexible and tailor made investment to smaller accounts at much lower costs.

The proposal involves two parts. First, the creation of periodically updated indices covering a wider spectrum of asset classes than is currently available. Second, the creation of financial instruments to track these indices, which will allow investors and small businesses to diversify and hedge their portfolios to a much larger extent than is possible with today’s investment vehicles. The aim is to use financial engineering methods and techniques to build an investment portfolio that is optimal for an investor, given his personal circumstances and preferences. Based on the features of an internal portal, there is exclusive access to an integrated set of proprietary products and services as well as links to partners that offer complementary financial services and access to any other financial products available through the Internet.

Another interesting idea from e-commerce is bundling. Companies have been exploring the potential of using the Internet technology to bundle related products to be

sold to their customers as a bundle, something like package tour or one-stop shopping.There are also examples of bundling of information products, e.g. music , electronic magazines and journals. Their experiences strongly suggest that banks can provide a more personalized service by creative bundling of existing financial products . In order to have the range of products to be included in the bundle, three approaches are possible. One is through consolidating by merger or acquisition. Another approach is by alliance. The third approach is by acting as an intermediary for others which is examined in next sub-section. Mergers and acquisitions are well known for their value destroying tendencies. Thus, banks may rely more heavily on alliances—which are inherently more flexible and can more easily be changed—as an alternative to outright consolidation .

The banking and financial industry is especially suited to bundling because their products and services are essentially informational in nature and can be digitized. “The more digital the product, the more easily it can be customized. For digital products,there are innumerable options for customers to choose from and customerization improves the fit between what the customer wants and what the firm can offer profitably. (Wind 2001: p43)” Moreover, with low production, distribution, and marginal costs, bundling can make sense (Bakos and Brynjolfsson 1999). Such ideas are very much in line with the observation of Herring and Litan (2003) that banks can only survive by being more client-focused and by customizing their services to client needs, rather than price-cutting.

Payment and Billing Services

Credit card is one of the few remarkable innovations introduced successfully by banks in the last five decades, and it is currently being used extensively in B2C electronic commerce. But it is an expensive means of payment for e-commerce and many on-line shoppers will prefer other forms of paying their purchase . So will many on-line retailers who have to cough up set up and transaction costs and 2-3% of every payment. Moreover credit cards are not suitable for person-to-person trade on the Internet. Such inadequacy shows up in on-line auction. The American government has expressed misgivings about the reliance on credit cards for e-commerce. In short, e-commerce has created a demand for low cost facility for micro payments and flexible payment .

New ways of on-line payments are appearing in the market, such as deduction from a pre-paid account, electronic billing services, direct transfer out of bank accounts. An interesting one is provided by X.com and PayPal which allows account holders to email money to each other . These are also value adders that enable more transactions in the internet commerce market. Typical enablers are payment service providers, clearing houses, and trust guarantors. Banks are increasingly building payment infrastructure with various security mechanisms (SSL, SET etc.) because there is tremendous potential for profit as more and more payments will pass through the Internet. The challenge for banks is to offer a payments back-bone system that will be open enough to support multiple payment instruments (credit cards, debit cards, direct debit to accounts, e-checks, digital money etc.) and scalable enough to allow for a stable service regardless of the workload.

CONCLUDING REMARKS

Financial firms of today can earn a fair living by adopting the practices of electronic commerce pioneered by themselves or by others. Just as important, they should provide value added innovative services to support electronic commerce, just as their predecessors did so some centuries ago in the emergence of modern commerce. It is the gist of this paper, and we have seen several examples. To do so, they have to get out of their rent seeking mentality, speculative habit and the mindset of doing more of the same. Less of fanciful rocket science mathematics but more of in-depth understanding of how Internet-based supply chain works.

Very interestingly, providing value to customers does not always require the use of sophisticated IT based systems. This point has a glaring illustration in the form of an old fashion and “boring” small bank in Germany which pays a generous 3.0% interest on savings, regardless of the size of deposit, and charges a mere 4.0% for mortgages and 5.0% for other loans. (Please see Appendix B.) We will not go into a study of whether the business model is likely to work for large banks with many branches. What is important here is the idea of delivering value to customers.

REFERENCES

Altinkemer, K (2001), Bundling e-banking services, Communications of the ACM, vol.44, no.6 (June), p. 45 – 47

Altinkemer, K. and S. Bandyopadhyay. (2000) The effect of the Internet on the music industry. Journal of Organizational Computing and Electronic Commerce 10, 3 (May), 209–224.

Applegate, L M et al (1996) Electronic commerce: building blocks of new business opportunity J. of Organizational Computing and Electronic Commerce, vol.6, no.1, p.1-10

Bakos, Y. and Brynjolfsson, E. (1999) Bundling information goods: Pricing, profits and efficiency. Management Science 45, 12 (Dec.), p.1613–1630.

Bolton, P, Freixas, X and Shapiro, J. (2004) Conflicts of interest, information provision, and competition in banking NBER Working Paper Series No; 10571

Buhl, H. U, Kundisch, D, Andreas Leinfelder, A and Steck, W (2001) Strategies for the Financial Services Industry in the Internet Age, in: Werthner, H., Lectures in E-Commerce, Springer, 2001, S.27-46.

Chen, T-J (2003) E-Commerce to Protect the Network Relationships: The Case of Taiwan’s PC Industry The Information Society vol. 19, p.59-67

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