E-Commerce – Definition, History and Types

Electronic commerce (e-commerce) is the term used for any type of business or commercial transaction that involves the transfer of products, services and information over electronic systems such as the internet and other computer networks. The trader and customer are not face to face at any point during these transactions, the business being conducted remotely, regardless of location. E-commerce covers a range of different types of businesses, from consumer based retail sites, through auction or music sites, to business exchanges trading goods and services between corporations. It is currently one of the most important aspects of the Internet to emerge. Almost all big retailers have electronic commerce presence on the World Wide Web.

E-Commerce includes transactions within a global Information Economy such as electronic trading of goods and services, online delivery of digital content, electronic funds transfer, electronic share trading, electronic bills of lading, commercial auctions, collaborative designs, engineering and manufacturing, online sourcing, public procurement, direct consumer marketing and after sales service. It includes both products (consumer goods, specialized medical equipment) and services (information services, financial and legal services, traditional services) and new activities (virtual malls). It involves the application of multimedia technologies in the automation and redesign of transactions and workflow, aimed at increasing businesses competitiveness.

E-Commerce - Definition, History and Types

Nowadays, e-commerce has become the essential method in the business world. The business transaction which is shifted to the Internet and computer network includes online credit card transactions, e-cash, e-billing, e-cheques, electronic invoices, purchase order and financial statements. Banks will need to adopt online payment systems and practices that will meet their clients’ new needs arising from a change to e-commerce.

Although most electronic commerce involves the transportation of physical items in one way or another, a large percentage of e-commerce is conducted entirely electronically for virtual items, such as access to certain information on a website, purchasing software or other on-line services.

E-business is a super-set of e-commerce. Electronic commerce is generally considered to be the sales aspect of e-business. It also consists of the exchange of data to facilitate the financing and payment aspects of the business transactions.

A Brief History of E-commerce

E-commerce and its meaning have changed a lot over the past 40 years. At first, the term e-commerce meant the execution of commercial transactions electronically, using technology such as Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT), which gave an opportunity for users to exchange business information and do electronic transactions. The ability to use these technologies appeared in the late 1970s and allowed business companies and organizations to send commercial documentation electronically, such as purchase orders or invoices.

E-commerce became possible in 1991 when the Internet was opened to commercial use. Since then, thousands of businesses have taken up residence at web sites. The internet began to gain popularity among the general public in 1994 and by 2000 a great number of business companies in the United States and Western Europe represented their services on the World Wide Web. By this time, the meaning of electronic commerce had changed. People began to define the term as the process of purchasing goods and services over the internet using electronic payment services.

The history of e-commerce is unthinkable without Amazon and E-bay which were among the first Internet companies to allow electronic transactions. Currently there are 5 largest and most famous worldwide Internet retailers: Amazon, Dell, Staples, Office Depot and Hewlett Packard. According to statistics, the most popular categories of products sold in the World Wide Web are music, books, computers, office supplies and other consumer electronics.

E-commerce Types  

E-commerce can be mainly divided into Business-to-Business electronic commerce (B2B) and Business-to-Consumer electronic commerce (B2C). B2B implies that both sellers (suppliers) and buyers are business corporations, while B2C implies that buyers are individual consumers. Business-to-business e-commerce is significantly different from business-to-consumer e-commerce. While B2C merchants sell on a first-come, first-served basis, most B2B commerce is done through negotiated contracts that allow the seller to anticipate and plan for how much the buyer will purchase. In some cases B2B is not so much a matter of generating revenue as it is a matter of making connections with business partners.

1. B2B e-commerce

B2B e-commerce requires the technological sharing of information among supplies, retailers, distributors, and other interested parties to create electronic relationships. B2B e-commerce does not just comprise the transaction via the Internet, but also the exchange of information before and the service after a transaction. From the purchasing company’s point of view, B2B e-commerce is a medium for facilitating procurement management by reducing the purchase price and the cycle time.

The key players usually include selling and buying companies, deliverers, and often some type of electronic intermediaries, or third-party service providers. These associations can take many forms, yet most fall into three models. These models are classified depending on who controls the marketplace: the supplier, the buyer or the intermediary:

  1. Supplier-Oriented Marketplace: Supplier-Oriented Marketplaces offer a group of customers a wide spectrum of products and services and also support them in their own business. The markets can involve proprietary auctions, bid systems, and exchanges. By using Supplier-Oriented Marketplaces, suppliers are offered new types of market channels in marketing and distribution. Products can be sold directly to the customer without using intermediaries. Most manufacture-driven electronic stores use this form of market place. Successful examples of this business model are e.g. Dell and Cisco.  Both Dell and Cisco sold and sell their products via the Internet. However, not only Dell and Cisco use the Supplier-Oriented Marketplace, there are thousands of other companies using this model. Cisco’s main business is providing electronic support using the Internet. The main applications are software downloads, defect tracking and technical advice. Cisco’s business model also includes customer service and finding order status, as well as selling routers, switches and other network interconnect devices.
  2. Buyer-Oriented Marketplace: By using Supplier-Oriented Marketplaces, buyers would have to search electronic stores and electronic malls to find and compare suppliers and products. This would be very costly and time consuming for big buyers, who purchase thousands of items on the Internet. As a result, such big buyers prefer to open their own marketplace, which is called a Buyer-Oriented Marketplace.  By supporting transactions and procurement processes, these marketplaces offer great potentials in cost savings. Buyer-Oriented Marketplaces are found in industrial sectors with few and dominant buyers. The buyer’s bidding site is the most popular type of Buyer-Oriented Marketplace. An example is GE’s electronic bidding site which enhances the company’s procurement process.    On such bidding sites suppliers can download the project information from the internet and submit bids for the project. Buyers then evaluate the supplier’s bids and may negotiate electronically. Buyers accept the bids that best meet their requirements. By doing so, buyers can identify and build partnerships with new suppliers worldwide. The information and specifications can be rapidly distributed to business partners (suppliers). As a result, bids can rapidly be received and compared from a large number of suppliers to negotiate better prices.
  3. Intermediary-Oriented Marketplace:  This business model is established by an intermediary company which runs a marketplace where business buyers and sellers can meet. There are two types of Intermediary-Oriented Marketplaces: horizontal and vertical marketplaces. Vertical marketplaces concentrate on one industrial sector whereas horizontal marketplaces offer services to all industrial sectors. The Intermediary-Oriented Marketplace is a neutral business platform and offers the classical economic functions of a usual market. The difference is that the participants do not have to be physically present. An Intermediary-Oriented Marketplace contains catalogues where information on products and prices can be presented. By offering search functions, the marketplace makes the comparison and transparency of products possible. Marketplaces can also offer auctions. These auctions can be organized by sellers (products are sold) or by buyers (orders are sold). Furthermore is it possible to offer electronic functions where participants can negotiate in real time.  An example of an intermediary-oriented marketplace is Buzzsaw.  Buzzsaw is a vertical electronic marketplace which concentrates on the building industry. Many different parties are involved in a construction project: e.g. building contractors, builders, manual workers, architects, merchants and the building owner. Many of these parties are regional sellers. Buzzsaw offers software to improve planning and communication between the parties. Detailed information about the building industry is also offered (e.g. news affecting the sector, a classified directory and a local weather forecast). The marketplace also provides the option to do business. All products relevant for the building industry can be traded. The Web site offers search engines to find the wanted products, and additionally, buyers and sellers can insert requests and offers on the marketplace.

2. B2C e-commerce

B2B e-commerce is basically a concept of online marketing and distributing of products and services over the internet. Business prefer this method because they can reach more customers, service them better, make more sales while spending less to do it. For the consumer, it is relatively easy to appreciate the importance of e-commerce. Many prefer not to waste time fighting the very crowds in supermarkets, and shop on-line at any time in virtual Internet shopping malls, and have the goods delivered home directly, all from the comfort of their own homes.

B2C e-commerce is conducted essentially via three business models:

  1. Pure-play online retailers, such as Amazon.com, sell only over the Internet. They do not sell offline and do not have traditional stores that consumers can visit.
  2. A second type of online retailer includes companies that have traditional stores or sell offline through catalogs or mail-order, but that also have a presence on the Web. These are known as “bricks-and-clicks” because they sell to consumers both through an offline channel and an online storefront.
  3. A third category consists of portals, such as America Online, where goods and services from several online retailers are offered to consumers.

Real Life Examples of E-commerce

Nowadays, e-commerce is one of the most important facets of Internet. A successful e-commerce business must be globally aware, system-oriented and customer sensitive. Companies can use the direct access to consumers to collect information that will help them better develop products to meet the consumers need through customization’s or create new niche products.

Another example of the well-known successfully attractive site is amazon.com. It is the global marketplace where businesses and individuals can buy and sell practically anything. However, some similar business requires brokers. The amazon.com using the e-market to deal the transaction, so that is not requiring any brokers. It can reduce the search cost, allowing consumers to find sellers that offer lower prices, better service, or both. This online company urges the use of secure electronic transactions. Their website also has a whole page devotes to convince its potential customers that using credit cards online with their business is safe. So that, the customer and seller has the confident to trust this website while doing their trade. After reading their security statement, if customer is still unsure about using credit card online, they encourage customers to submit their order without using credit card online and they will contact them to complete their order. These shows that Amazon is providing an attractive website to the users and enhanced trust regarding well relationship with their customers as well as secure to buy their product online. This built up a very strong relationship between customers and seller in term order to increase its sales and profit.

In addition, dell.com also promotes the use of secure electronic transactions. The Dell Company selecting the right product to sell is a critical success factor for e-tailing. Dell using e-commerce also decrease the amount of time involved in the order-taking cycle because automation can be introduced to help customers search for, select, and pay for a product, anyplace and anytime, without the intervention of a sales or technical person. Finally, product updated can be communicated to customers rapidly. The Dell Company also provide the cost and speed of product customization. Millions of consumers configure computers to their liking. The Dell Company can fulfill such requests at a reasonable cost and in a short amount of time; this is the reason for Dell can assure success.  As for implementing security measures, Dell utilizes industry-standard Secure Sockets Layer (SSL) technology to allow for the encryption of potentially sensitive information such as the customer’s name and address, as well as critically sensitive information like their credit card number. The Dell Store Web site is also registered with site identification authorities to enable a browser to confirm the Dell Store’s identify before any transmission is sent. Dell.com also backs each credit card order with the Secure Shopping Guarantee. This guarantee further ensures that the customer is protected every time they buy online with Dell. This shows that Dell website success is caused by providing a reliability and security to their users and potential customers. They also provided a self-serve site to let their users easy to use or download the software to solve their problem without assistance and are letting customers help themselves. If the problem really is very serious, the customers can send e-mail to them for requesting help and then they will come to customer house within 3 days to help customer solve the problem. This provided very efficiency service and very responsible to their customers and show their confident with their product. On the other hand, if the customers directly buy through their website, their providing an incentive and attractive price for customers to buy and to return. They provided sales promotion involve coupons, special offers and discounts. So, they can build up their goodwill and image in the mind of users and potential customers.

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