E-Commerce

E-COMMERCE DEFINITION

Electronic commerce is an emerging concept that describes the process of buying and selling or exchanging of products, services and information via computer networks including the internet

E-COMMERCE CLASSIFICATION

A common classification of EC is by the nature of transaction:

Business-to-Business (B2B): electronic market transactions that take place between organizations

Business-to-Consumer (B2C): retailing transactions with individual shoppers – typical shopper at Amazon.com is a consumer

Consumer-to-Consumer (C2C): consumer sells directly to consumers, examples -individuals selling in classified ads, auction sites allowing individuals to put up items for auction – e.g, e-bay

Consumer-to-Business (C2B): individuals who sell products or services to organizations and those

who seek sellers and conclude a transaction

Intra Business (organizational) EC: all internal organizational activities involving exchange of

goods, services or information, selling corporate products to employees, online training and cost

reduction activities

Non-Business EC: academic institutions, not-for-profit organizations, religious/social organizations

and government agencies using EC to improve their operations, customer service and reduce expense

Basic Definitions

Web client- machine that initiates internet request

Web server – machine that services internet request

Browser - software at the client side to interact with web data

Intranet – an internal network of computers confined to a single place

Extranet – when two or more intranets are connected with each other, they form an Extranet – e.g, Virtual

Private Network

Internet – a global network of networks is defined as internet.

Security – the biggest challenge

There is a consensus that the issue of computer and data security is the biggest hurdle in the growth of ecommerce. Web servers also face this security threat. Programs that run on a server have the potential to damage databases, abnormally terminate server software or make changes in the information placed there. A number of international organizations have been formed to share information and combat security threats to computers and computer networks. The names of two such organizations are worth-mentioning:

Computer Emergency Response Team (CERT)

Systems Administrator, Audit, Network and Security Institute (SANS Institute)

The best response that the experts have come up with to tackle the security issue is in terms of cryptography.

Cryptography

Cryptography is the technique of converting a message into unintelligible or non-understandable form such that even if some unauthorized or unwanted person intercepts the message he/she would still not be able to make any sense out of it. Cryptography is thousands of years old.

Techniques used for cryptography Substitution In substitution we replace each letter in the message with another to make the message non-understandable. For example, each letter “a” in the message can be replaced with letter “d” and letter “b” with letter “e” and so on. Transposition It is based on scrambling the characters in a message. A transposition system may first write a message into a table row by row then the message can be read and rewritten column by column to make it scrambled.

Electronic Payment Systems

Most of the electronic payment systems on internet use cryptography in one way or the other to ensure confidentiality and security of the payment information. Some of the popular payment systems on internet include the credit-card based payment systems, electronic checks, electronic cash, micro-payment systems (Millicent, pay word etc.)

The Process of Using Credit Cards

It may be useful to see how payment is made through a credit card in the traditional sense.

1. A potential cardholder requests an issuing bank in which the cardholder may have an account, the issuance of a card brand (like Visa or MasterCard). The issuing bank approves (or denies)

the application. If approved, a plastic card is physically delivered to the customer’s address by mail. The card is activated as soon as the cardholder calls the bank for initiation and signs the

back of the card. 2. The cardholder shows the card to a merchant whenever he or she needs to pay for a product or

service.

3. The merchant then asks for approval from the brand company (Visa etc.) and the transaction is

paid by credit. The merchant keeps a sales slip.

4. The merchant sends the slip to the acquirer bank and pays a fee for the service. This is called a

capturing process.

5. The acquirer bank requests the brand to clear for the credit amount and gets paid.

6. Then the brand asks for clearance to the issuer bank. The amount is transferred from issuer to

brand. The same amount is deducted from the cardholder’s account in the issuing bank.

Note that in case of a credit card the issuer bank charges interest from the client at a specified rate on the amount lent. On the other hand, in case of a debit card no such interest is payable since the customer uses his/her own money in that case.

Virtual PIN Payment System

It is one of the earliest credit card-based systems launched for the internet in 1994 by a company; First Virtual Holdings, Inc. Virtual PIN system does not involve the use of encryption. Payment is made through the credit card in this system. The objective was to allow the selling of low-value information items without the use of any special client software or hardware.

Both merchants and buyers are required to register with First Virtual (FV). A buyer registering with FV forwards his or her credit card details and email address to FV and in exchange receives a pass phrase called, Virtual PIN. Buyer makes a telephone call to FV to provide his/her credit card number. FV establishes a link between the Virtual PIN and the credit card number without using the credit card number on the network. A Merchant goes through a similar registration process. He provides his bank details to FV and is given a merchant Virtual PIN. The merchant can now request to process payments from registered FV customers. The transfer takes place with the help of Automated Clearing House (ACH) service. Note that an ACH is a centralized system to which different banks are electronically connected forming a network for clearing payment requests. At the end the payment proceeds from the credit card issuer bank to the account of the merchant with acquirer bank (merchant’s bank) through ACH, after FV deducts a per-transaction charge for its services.

Advantages of E-business

Personalized service: Product, place, price and promotion are generally recognized as the 4 P’s of marketing in relation to traditional offline businesses. However, personalization is the 5th ‘P’ added to the other 4 P’s when we talk about an e-business. In fact, the nature of internet technology is such that the information about the online customers including their buying behavior can be recorded in the databases.

High-quality customer service: Customers can provide their feedback or register their complaints quite conveniently in case of online business as compared to offline business, and in light of that an e-business can improve its customer services.

No inventory cost: An e-business can have minimum overhead cost. You do not need to have any special physical place to start your business or hire any staff to operate the business as required in offline business.

Worldwide reach of your business: 24 hours worldwide reach is possible by this way.

Electronic catalogues: Electronic catalogues are used in case of an online shop

Bulk transactions: One can do bulk transactions during one visit to an e-shop.

Disadvantages of E-business

Less security: The biggest obstacle in the growth of e-commerce is the issue of security. Internet is not a secured medium of communication. There are tools or options available to hackers whereby they can not only monitor but also control any data communicated over the internet.

Less privacy: The nature of internet technology is such that private information of the online customers can be easily collected and recorded on the server side. The buying pattern of a customer can be known to an e-shop with the help of certain sophisticated tools.

No physical proximity with items purchased: In certain cases the customers cannot decide about buying a thing before they can physically examine it. An e-business has a limitation in this regard.

PORTER’S MODEL OF COMPETITION.

Porter’s Model helps a firm to identify threats to its competitive position and to devise plans including the use of IT and e-commerce to protect or enhance that position. Porter identified five forces of competitive rivalry described as under:

Threat of new entrants: This threat relates to the ease with which a new company or a company in different product area can enter a given trade sector. Typically, barriers to entry are capital, knowledge or skill. Conversely, advancements in technology have given rise to new ideas providing opportunity to new entrants.

Threat of substitution: This threat arises when a new product is available that provides the same function as existing product/service. For example, cotton fiber was, in the past, replaced by synthetic fiber, and glass bottles were substituted by plastic ones.

Bargaining power of buyers: The cost of producing and distributing a product should be less than the price it can bring in the market in order to be profitable. Number of competitors and the supply of a product are the two major factors that determine bargaining power of the buyers. A buyer is in a strong position to bargain for low price if there are many competitors and/or the supply of the product in the market is in surplus.

Bargaining power of suppliers: Businesses try to find more favorable terms from their own suppliers. If supply of raw material is plentiful and/or there are many suppliers, the supply can be procured at a low price. Otherwise, position is more favorable to the supplier having more bargaining power.

Competition between existing players: Competition among businesses is to get more buyers and trade at a price that produces an acceptable profit. If there are many players of the same size, capacity and strategy having little difference between their  roduct/service, then there is fierce competition among them as regards the price of the product/service. Even a small change in the price of the product/service can be crucial for the business.

The use of EC can cause a significant difference by reducing administration/transaction cost, increasing efficiency of supply chain, improving product quality and customer service.

The five force analysis determines attractiveness of the industry whether to enter that industry as a business or not.

Strategic Planning Cycle

E-business competitive strategy is normally formed and implemented according to a planning cycle which is called strategic planning cycle.

There are four stages in this planning cycle: 1) Industry and competitive analysis, 2) Strategy formulation, 3) Implementation. 4) Strategy assessment.

 WHAT IS A NETWORK

A network can be anything from a simple collection of computers at one location connected through a connectivity media to the internet (a global network of networks). Local Area Network (LAN) is a server based

network confined to a particular area/place. Most LANs consist of many clients and a few servers.

Why networking your computer

We network our computers to share resources and communicate. We can do networking for:

1 File sharing

2 Hardware sharing – printer sharing, for example

3 Program sharing

4 User communication through a machine called e-mail server

Network protocol

Network protocols are those standard rules using which computers on a network communicate and exchange data with each other. A group of protocols that prepare the data for communication on the network is called the Protocol stack.

NETWORKING DEVICES

Topology of a LAN means its physical lay out. There are three main types of Network Topology, namely,

Bus Topology, Star Topology and Ring Topology. There are two different approaches to networking – Server-based and Peer-to-Peer approach. In server-based approach there is a centralized server machine that can serve users’ requests for the sharing of resources on a network. Contrarily, in peer-to-peer, the machines on the network have an equal capability which means that they can

act both as a client and a server.

Networking devices

Hubs

These provide central connection point for a LAN. They organize cables and relay data signals to all computers. There are ports on the back of a hub used to connect computers. They come in different sizes and shapes.

Repeaters

Repeaters regenerate signals. A repeater would amplify the entire electric signal it receives. However, it has no capabilities of directing network traffic.

Bridges

A Bridge is a combination of hardware and software. It has its own operating system. It helps to conserve the bandwidth of a network. Bandwidth is the speed of a network. It indicates how many bits can be transmitted across a network in a given time. In case of a bridge, the larger network is physically chopped into smaller segments. A bridge can read the MAC (Media Access Control) or physical address of a

computer on data packets. MAC address is printed on the Network Interface Card. A bridge matches this MAC address with the one stored in its table and judges that which particular segment does a data packet belong to and accordingly sends that packet to such a segment. It does not allow other packets belonging to other segments to spread to a particular segment and hence conserves the bandwidth.

Switches

A switch is also a combination of hardware and software having its own operating system. Like bridges, the

switches are also used to increase the bandwidth of a network. However, in case of a switch, a network is

virtually divided into small segments called Virtual LANs or VLANs. Similar type of users can be grouped

into a VLAN despite that they have no physical proximity or closeness. A switch would read the MAC

address on a data packet and match it with the list of MAC addresses of the user machines contained in it. It

then sends data packets only to that machine on a VLAN to which these packets relate. Packets belonging

to other VLANs are not allowed to enter into a particular VLAN, hence bandwidth increases.

Routers

Routers use a combination of hardware and software to forward data packets to their destination on theinternet. They are more efficient and sophisticated than bridges and switches. They can divide large networks into logical segments called Subnets on the basis of IP addressing scheme. A router can

communicate with another router on the internet with the help of Routing Information Protocol, and thus it can build a routing table. This routing table contains information about different network addresses and different routes for delivery of data packets to a host machine on a network. A router is a decision making device. When a data packet arrives at a router it reads the network addresses from the IP address on the data packet and determines the shortest possible path through which this packet can be delivered to its destination.

International organization for standard’s (ISO) model

In 1970’s came ISO’s OSI model – a conceptual model for network communications. OSI stands for Open System Interconnection Reference Model and it proposes a 7 layer architecture. Each layer (except physical layer) at the sending machine sends instructions through its header to the receiving machine as to how the accompanying data be interpreted or treated by the receiving machine. Header is a piece of information which is attached to the data at its beginning by each layer except the physical layer. The process of moving the data down the OSI Protocol stack at the sending machine is called Encapsulation, and the process of moving the data up the OSI stack at the receiving side is called De-encapsulation.

Application layer

It sits at top of the OSI model. Requests related to file transfer and database queries are handled by this layer. Two very important protocols, namely, HTTP and FTP (file transfer protocol) operate at this layer.

Presentation layer

It is the translator of the OSI model. It provides instructions through its header that how the accompanying data should be formatted by the receiving machine. MIME-multipurpose internet mail extensions protocol operates at this layer to define file formats and data types

Session layer

It provides instructions about the nature of communication link between the sending and receiving machine during a session. A combination of protocols called Session Protocol Data Units work at this layer. Three modes of communication are simplex, half-duplex and full-duplex. Simplex means communication in one direction only. Half-duplex means communication in two directions but one party can send data at a time.

Full-duplex means communication in two directions while both parties are able to send data simultaneously.

It also places special checkpoints on data packets to trace any lost packets.

Transport layer

TCP (Transmission Control Protocol) or   UDP (User Datagram Protocol) operate at this layer. It has two functions. It converts the data into data packets. Secondly, it is responsible for flow control of data. TCP is more reliable as it is acknowledgment based as opposed to UDP which does not use any system of

acknowledgment for the delivery of data packets.

Network layer

It is responsible for providing IP addresses on data packets using IP protocol. Routing Information

Protocol (RIP) also operates here which enables routers to build their routing table. Another protocol,

Address Resolution Protocol (ARP) is also designed to operate at network layer.

Data link layer

It places data packets into data frames. Network Interface Card Drivers/Protocols operate at this layer. It is

used to identify MAC or hardware address of computer machines. A mathematical calculation, Cyclical

Redundancy Check (CRC), takes place here to confirm integrity of data frames.

Physical layer

It has got no header. All information including the header information is converted into binary data at this

layer. It results into the generation of electric signals as 1s and 0s are queued up and travel along the

connectivity media to the receiving side

BASICS OF HTML

john@hotmail.com is the example of an email address. In order to deliver an email at this address, the part

‘hotmail.com’ would first be translated into the IP address of hotmail email server through DNS. A message

sent to John can then be stored in his account lying in the hotmail email server. There are three protocols commonly used for emails. Simple Mail Transfer Protocol (SMTP) is used for sending email messages between servers. In other words it is used for message uploads. Post Office Protocol 3 (POP3) or Internet Message Access Protocol (IMAP) can be used to retrieve messages. They should also be configured with

SMTP. POP is used to download email to the client machine from the server side and the message is deleted from the email server after download. On the other hand, in case of IMAP the message is not deleted in the email server and thus can be reopened from another location/machine.

Hypertext markup language

Web documents are defined by the Hypertext Markup Language (HTML). It is a language of tags. A tag is a special letter or key word enclosed in angular brackets. Most tags have their corresponding closing tags represented by the same special letter or key word enclosed in angular brackets but preceded by a slash (/).

Depending upon which tag is used the enclosed content can then have a specific effect, style or format. HTML is case independent. It has a fixed no. of tags and attributes. Attributes are those specific words/letters prescribed for certain tags having certain possible values. The browser has the capability of

reading/interpreting each tag and its attributes used in a code and can show the result accordingly. One can

see the source code of an HTML page using the option.

SYMMETRIC KEY ALGORITHMS

Cryptographic algorithms are measured in terms of key length. Following is the list of some popular symmetric key algorithms: DES (Data Encryption Standard) – 56 bits IDEA (International Data Encryption Algorithm (IDEA) – 128 bits RC2 – (block cipher) 1-2048 bits

RC4 (stream cipher) – 1-2048 bits

Rinjdael – 128-256 bits

Attacks on Symmetric Key Algorithms

Following attacks have been reported on symmetric key algorithms: Key Search Attacks Cryptanalysis System-based Attacks Key Search (Brute Force) Attacks In this type of attack an attempt is made by the attacker to decrypt the message with every possible key.

Thus, the greater the key length, the more difficult it is to identify the key.

Cryptanalysis Encryption algorithms can be defeated by using a combination of sophisticated mathematics and computing power so that many encrypted messages can be deciphered without knowing the key. Such type of an attack is called cryptanalysis.

System-Based Attacks In it the attack is made on the cryptographic system that uses the cryptographic algorithm without actually attacking the algorithm itself.

Public Key Algorithms

Following is the list some popular public key algorithms:

DSS – Digital Signature Standard based on DSA (Digital Standard Algorithm) –

key length is between 512-1024 bits

RSA Elliptic Curves

Attacks on Public Key Algorithms

Key Search Attacks

The public key and its corresponding private key are linked with each other with the help of a large composite number. These attacks attempt to derive the private key from its corresponding public key using that number. According to an estimate 1024 bit RSA public key may be factored due to fast computers by 2020. Note that both symmetric and asymmetric algorithms are based on different techniques. In case of as compared to symmetric algorithms. Thus, a 128-bit RC2 symmetric key may prove to be much stronger

than a 1024 bit RSA asymmetric public key.

Analytical Attacks

Such attacks use some fundamental flaw in the mathematical problem on which the encryption system itself is based so as to break the encryption. Quantum computing is the branch of computer science that deals with the development of cryptographic algorithms. It can also be used to find flaws in the cryptographic system/algorithms and to launch attacks.

Electronic Payment Systems

Most of the electronic payment systems on internet use cryptography in one way or the other to ensure confidentiality and security of the payment information. Some of the popular payment systems on internet include the credit-card based payment systems, electronic checks, electronic cash, micro-payment systems

(milicent, payword etc.)

The Process of Using Credit Cards

It may be useful to see how payment is made through a credit card in the traditional sense.

BARRIERS TO INTERNATIONAL E-COMMERCE

E-commerce is a combination of three different areas of study, namely, technology, business and

law/policy. We have studied the technology and business side of e-commerce to a reasonably good extent.

Now, we have to start the law and policy side of e – commerce. However, before we do that lets discuss some interesting issues related to the international aspect of e-commerce.

Barriers to International e-commerce

Barriers to international ecommerce include lack of trust, lack of infrastructure, language and culture.

Lack of Trust

It is very important for online businesses to establish trusting relationships with their customers like in the physical world where companies ensure that customers know who they are. However, it is difficult to build trust because a kind of anonymity exists for companies trying to establish web presence.

Language

Only way to do business in other cultures is to be a part of such cultures. Language plays a very important role in this regard. In the first step you should provide local language versions of your web site. Software packages exist that can translate your web site content into different languages.

Culture

It should be useful to know about different cultural issues surrounding international e-commerce. Firstly,

there is the issue of choice of name.

Infrastructure issues

Internet infrastructure includes computers and software connected to internet and communication networks over which data packets can travel. In many parts of the world, telecommunication industry is

either owned by the government or is strictly regulated by the government.

SUPPLY CHAIN

Supply chain includes all the activities associated with the flow and transformation of goods from the raw

materials stage all the way to the end user. Supply chain can be broken into three parts, that is, upstream activities, internal activities and downstream activities. Upstream activities relate to materials/services or the input from suppliers Internal activities relate to manufacturing and packaging of goods

Downstream activities relate to distribution and sale of goods to distributors/customers

Note that milkmen supply milk to the processing facility. The processing business has ordered a corrugate paper company to supply boxes/paperboard for packaging. The paper company receives its raw material from a lumber company for manufacturing boxes. The lumber company also supplies paper to label printing business for

making/printing paper labels. These are upstream activities. The boxes and labels should be available to the processing business at the packaging stage. The milk processing unit processes the milk, packages it in boxes and attaches labels to them. These are internal activities. The packaged milk is sent to distributors

who distribute the same at different stores from where customers purchase. These are downstream activities.

Supply chain management

Engaging and negotiating with suppliers can be extremely beneficial. The process of taking active role in working with suppliers to improve products and processes is called supply chain management. Today, firms are reaching beyond limits of their own organizational structure. They are creating new network form of organization among the members of supply chain. Supply chain management is now used to add value in

the form of benefits to the ultimate customer at the end of supply chain. It has become important for a business to work to establish long term relationship with at least small number of capable suppliers.

Internet technologies and supply chain

Internet is a very quick and effective tool of communication. On the other hand, communication is also a very critical element in supply chain management. Using internet technology: suppliers can share any information about changes in the customer demand; suppliers can have immediate notice of any changes in product design; drawings/specifications of a product can be quickly provided to the suppliers and vice versa; processing speed of a transaction can be increased;

cost of handling a transaction can be reduced.

META INFORMATION

You know that a Meta tag contains the key information of a web page. This Meta information is used by a search engine to locate and rank the web site. You provide your Meta information to a search engine, pay its prescribed registration fee and get your site registered with the search engine. Search engine puts this Meta information in its database. When a searcher types key words in the search engine text box, these key words are matched with the Meta information recorded in the database of the search engine.

Different search engines have different ranking criteria. Normally, those sites are ranked at the top by the search engine software where maximum keywords typed by the user match with the recorded Meta information of the site, as well as, such words appear in greater frequency in the Meta information. Some

search engines search the entire internet each time. Many search engines rank the site by using a program called ‘spider’ which inspects the site before ranking. You know that one can view Meta information of one’s competitor’s web site. This information can be incorporated and misused by an e-business in its web site representing that to be its Meta information. Thus, such a business can improve its ranking on search engines by capitalizing upon the reputation of the business whose Meta information it actually is. In many

countries, stealing and misusing Meta information in this manner to gain business/competitive advantage is

considered as an offence known as the tort of passing-off.

Partnerships

Partnering means to form a strategic union with another company/business for mutual benefit or profit sharing. Partner businesses can provide complementary services and products to their customers and thus benefit each other. For example an e- business selling computer science books having a link to an e-business selling computers and vice versa can enter into a partnership for mutual advantage. Competitive advantage to both the businesses in this arrangement is that the customers are a link away from buying a complementary product/service. Thus, a person buying a computer from one site can be induced to buy computer science books from the partner’s web site. Moreover, partners can exchange technical research or

customer information. They can help each other in improving respective management or operations.

Outsourcing a job to a partner can also be useful.

Affiliate Programs

An affiliate program is an agreement between two parties that one will pay the other a commission based on

a specified customer action. It is not a strategic union as is partnership. Rather, it is for limited purpose and

time. Banner advertising is the example of an affiliate program.

Branding

A brand refers to an emotional shortcut between a company and its customers. You can say that it is the

trade name/symbol that reminds customers about the reputation of a company regarding its products or

services.

Elements of Branding

Researchers have identified three elements of branding, that is,

Differentiation

Relevance

Perceived Value

Product differentiation

Product differentiation is the first condition to be met in order to create/establish a product/service brand.

It means that a company must clearly distinguish its product from all others in the market in some

significant way so that the product/service is different from that of its competitors. For example, you can