Handbook on Electronic Commerce

There is a revolution transforming the global economy. Web technology is transforming all business activities into information-based. The rate of technological change is so rapid that emerging electronic commerce already is making fundamental changes in the economic landscape, affecting every aspect of how business is and will be conducted. The Web has extended the reach of corporations. New business opportunities are growing incrementally because of the vast amount of business information made available by the global Web, which helps bring together the information passed between businesses, between a business and its customers, and among different departments of a business. It will no longer be possible operationally or strategically to ignore the information-based virtual value chains for any business. This chapter reviews the scope, current applications, and the potentials of electronic commerce. It also develops a framework for identifying the significant opportunities and important research issues associated with electronic commerce. The emphasis is on taking an interdisciplinary view that integrates technology and business models.

This chapter surveys effects of digital technologies on traditional economic research areas ranging from price negotiation to search activities, from product choice to monetary policy. The Internet and its commercial uses have stimulated a high level of interest but electronic commerce is often seen as an alternative marketing channel to existing physical media or markets. However, computer and networking technologies have the potential to transform not only the way we shop but also the way our economy operates. An economy characterized by these technologies is the digital economy where market agents behave differently under different sets of economic rules from the physical economy. We begin by discussing some economic implications of digital technologies. Then we examine major research issues in Internet infrastructure pricing, network effects, online auctions, advertising and consumer search, customized product and pricing, antitrust policies, fiscal and monetary issues and market globalization. Our goal is to demonstrate how fundamental are the economic transformations triggered by the use of technologies. We conclude by noting that computer and networking technologies not only improve efficiencies at the margin but also present a new type of market which might be a textbook example of a perfect market that requires a more vigorous reexamination of traditional economic assumptions and results.

With the increased competition in E-commerce, Internet-based business applications have migrated from being on-line and cost-saving transactions into full-service Internet Commerce. These systems are expected to provide increasing decision support functionalities to help traders optimize their business decisions. This chapter provides a broad overview of how Decision Support technology — an established area with a substantial literature and body of practice — can be incorporated into the design of IC. In particular, it provides examples that show the potentiality of applying Decision Support Systems (DSS) concepts to design a second generation of IC capable of assisting its trading partners in their decision making.

In this chapter we survey the economic impact of electronic markets (e-markets). We identify and analyze examples of e-markets, the impact of e-markets on the structure of industries, buyer and seller cost differences for traditional and electronic markets, revenue source implications for sellers and transaction intermediaries, and determinants of e-market success. The overall issue addressed is whether there are economic incentives for electronic markets, or are they just a passing fad?

This chapter provides an analysis of electronic commerce markets and users. Here we describe the tools necessary to find, assess, select and interpret the wealth of available information that characterizes electronic markets and the Internet user population. We begin with an introduction to relevant Internet statistics as well as the quantitative and attitudinal measures commonly employed. Next, we portray the past, current, and future Internet user populations. Finally, the major advantages and disadvantages of different estimation techniques are highlighted, and the major producers of Internet statistics and forecasts are identified. Here our emphasis is on the reliability and trustworthiness of reported research results.

This chapter explores how the rising tide of interactive technologies will affect traditional marketing management practice and marketing strategy development. We focus on consumer behavior and marketing management, and how the two will interact via this new media. Clear trends are emerging, driven by information technology that directly links buyers and sellers. Based on the consideration of the model of buyer behavior, we draw insights for building a business that differ from traditional marketing methods. For example, we make clear that the use of the internet as simply another advertising medium grossly underutilizes its power to aid in building a strong business foundation. We take a futuristic approach, considering technologies that are under development but not yet perfected, such as electronic agents, as well as those currently in use.

In this chapter, we discuss product marketing using the Internet, particularly the use of Internet for product promotion and new consumer processes. Internet advertising, virtual storefronts, and virtual communities are explained with examples and our views. We then present new consumer processes on the Internet and show how they enhance the fulfillment of the consumer purchase needs and also support interactive marketing. We discuss the challenges of measuring Web advertisements and close the chapter with a summary of our views on Internet and marketing.

The concept of involvement underlying human behavior has been found to be a crucial construct in various disciplines. For example, a greater understanding of this construct has allowed marketing and consumer behavior researchers to develop insights into consumer search processes and strategies, audience involvement in advertising (Greenwald and Leavitt, 1984), temporal context of product involvement (Richins and Bloch, 1986), and advertising effectiveness (Petty, Cacioppo and Schumann, 1983). Similarly, a better understanding of the Internet involvement can allow researchers and business managers to develop better insights about consumer behavior in the context of electronic commerce. This study draws upon existing theories on involvement in multiple disciplines such as consumer behavior, information systems and economic psychology and adapts existing instruments (validated in past research), to develop a measure of internet involvement. The developed instrument is then used to investigate consumers’ distinct behaviors regarding electronic commerce. The study provides evidence that high and low involved consumers differ in terms of their behaviors regarding the Internet.

The history of the Internet and the tradition of marketing present an inherent culture clash in the emerging practices of Internet Marketing. In this chapter we describe how this culture clash developed, detailing the broadcast nature of traditional marketing messages, and differences between control of content and measuring effectiveness of Internet Marketing as compared with traditional marketing. Following the theme of culture clash, strategies for assimilation and accommodation to the Internet culture for effective Internet Marketing are presented. Current research results on consumer attitudes and reactions toward Internet Marketing provide support for strategies for commercial marketers to cope with the new culture, establish cultural competence, and finally, become a member of the Internet culture.

The number of electronic stores is increasing in an unprecedented speed. A recent study indicates that store design may affect customer’s decisions on whether to buy electronically. This chapter covers various issues involved in designing an electronic store. We first examine the perspectives of the seller and the buyer. Then, requirements and procedures for building a store are presented. Tools available for building the store are also introduced.

Organizing technology work in teams that meet in a larger group called a “cohort” can create a learning organization that uses time and energy effectively. Developing and maintaining World Wide Websites for information storage, dissemination, and for business transactions in a cohort is one way to reorganize work processes, but it requires learning and adaptation. An organizational cohort can allow members to learn from each other, thereby expanding the knowledge base and accomplishing tasks more quickly than working in isolation. This chapter demonstrates how a cohort is used to develop Websites and policies by profiling one case -The Center for Technology in Government’s Internet Testbed Project. Practical tools, such as stakeholder analysis, best practices research, strategic framework, prototyping, and a cost performance analysis are highlighted and explained as part of a successful cohort undertaking. A discussion of effective means of developing policy and managing a Website is also included.

In this chapter, we propose a framework for integrated design, advertisement and retailing of garments over the Internet. This on-line shopping framework would make use of the latest research in computer graphics, image processing, computer vision and artificial intelligence. We describe these technologies in more detail, and explain how they can be used to build a visually attractive and easy to use interface to an intelligent integrated system that fulfils most of the functions of the traditional production chain, while allowing for mass-customization.

We provide an overview of online payment solutions targeted at consumer mass markets. Starting with a categorization and description of systems and services, the survey is focused on two specific implementations: An SET-based online credit card application and an elec tronic cash trial have been chosen to illustrate important processes, systems architecture and infrastructure issues. We close with a discussion of strategic implications of online payment solutions.

Smart cards have been in use for over two decades, primarily for storing small amounts of money for specialized purposes. People carry them to pay for telephone calls, transportation, photocopying in libraries and the like. These cards have become very popular in Europe and Asia. Recently, the use of smart cards has expanded considerably through the use of micro processor chips. For example, in several countries smart cards are used as identification cards which include information raneine from health status and insurance to retirement benefits.The latest development in smart cards technology is its Internet related applications, which are mostly related to the support of electronic commerce payment systems and security. There are manybenefits in using smart cards that will ultimately translate into savings for businesses and consumers.

In this chapter we focus on system architectures for electronic commerce applications. The chapter surveys the impact of new software engineering concepts like object frameworks, distributed object computing and component-based programming on the development of electronic commerce applications. We outline limitations of current systems and show how these new techniques help in achieving increased interoperability and reusability of electronic commerce systems. As high-level interoperability between the systems of different participants is a critical enabler for many new applications in electronic commerce, the appendix gives an overview of upcoming approaches to document-centric electronic commerce standards.

In this chapter we discuss digital libraries from an electronic commerce perspective. The focus is on what the two have in common. The first section is an introduction which discuses some of the impacts that digital libraries and electronic commerce have had on our lives. The second section discusses common driving forces behind the two. The next section discusses common challenges, with an emphasis on the digital library perspective. The fourth section discusses several common issues, in particular, social, legal, quality, security and economic issues that both digital libraries and electronic commerce must address. The discussion in the fourth section primarily presents a digital library perspective, although the issues are important to both digital libraries and electronic commerce. Finally, the chapter closes with a conclusion.

This chapter is a survey of intelligent software agents in general and more specifically electronic commerce agents (ECAs). We begin with basic definitions and discuss the history and economic reasoning motivating the development of software agents. This is followed by a description of agent characteristics and a taxonomy showing where ECAs fit into the landscape of software agent research. How agents accomplish their goal seeking is described along with the learning and action mechanisms. Specific examples of electronic agents are given along with the economic and ethical impacts they are currently having on the market place and the potential impacts they may have in the future.

Electronic catalogs [e-Catalogs] are becoming the gateway to Electronic Commerce on the Internet. Most of the research and applications to date have centered on supplier based catalogs. There are at least as many business buyers as there are suppliers and yet little information is available to these buyers concerning the benefits, costs, and managerial considerations associated with the use of e-Catalogs. We examine e-Catalog issues from the business buyer’s viewpoint. We concentrate particularly, on the use of web-based supplier catalogs in the management of procurement transactions. After reviewing the Web-based e-Catalog system design issues, we consider tangible and intangible aspects of cost/benefit relationships when adopting a Web-based procurement/purchasing system [WBPS]. There are some obvious tangible and intangible benefits. However, when adopting a WBPS, it is important for management to address the organizational issues very early on to assure organizational buy-in. We consider the various managerial issues that need to be addressed to assure a successful implementation.

We assert that the New Economy, together with the advent of electronic commerce, has moved mass customization beyond the realm of myth and mystery for many firms and squarely into the realm of mandatory consideration. The shift away from mass marketing and toward mass customization parallels a similar shift away from mass communication (broad-casting) toward targeted communication (direct addressing). We observe that this phenomenon has enabled a new wave of customer intimacy. Firms are responding by fundamentally changing their manufacturing, distribution, and delivery of products to enable economical mass production of customized goods. The full implications of this apparent paradigm shift remain unpredictable. We posit that this shift offers the global society the potential of profound benefits as well as the risk of substantial cost.

In this chapter, I survey recent developments in supply chain relationships that have been designed to exploit technology. Firms are now in a position to more tightly link themselves with other firms through their use of supply chains in order to attain greater efficiencies.

This chapter proposes an integrating view of Supply Chain Management as a set of Visible Design Rules that govern interactions across independent organizations, each with its own hidden operational and organizational information. Applying the principle of modularity from computer architecture to supply chain studies, we specify the basic three elements of visible rules: architecture, interfaces, and standards in the context of supply chains. Subsequently we discuss a set of measurable operations performance metrics, interfaces among supply chain partners in the form of processes that cut through multiple layers of the chain, and partnership and network structure as the architecture of supply chains. We suggest that supply chain management studies and practices should focus more on the overall visibility of standards, interfaces, and structure instead of probing into each organization’s detailed planning and operations, to allow for the maximum flexibility for them to change and innovate. The ultimate goal is to achieve an agile supply chain with quick and accurate response in a fast changing business environment.

A key constituent of supply chain management strategies is information sharing. Software component technology facilitates information sharing by providing a means for integrating heterogeneous information systems into virtual information systems. Extranet technology facilitates information sharing between an enterprise and its business partners as well as its customers through the Internet. These two technologies enable new strategies that integrate information systems and improve supply chain networks. We discuss the application of these strategies to supply chain processes.

In a virtual organization, goods and services are accessible without face-to-face contact with other people. In such organizations, computers and telecommunications substitute for physical location. Virtual organizations are particularly suited for E-commerce because the contact between the customer and the vendor is a home page on the Internet. This chapter discusses the forces, dilemmas, issues, and implications of ongoing virtual organizations and their relation to E-commerce. It describes the four main driving forces (global economics, policies and politics, the enlightened population, and technologies) and the issues and complexities that these forces impose. Distributed organizations based on telecommuting and temporary alliance of multiple organizations are described as specific instances of virtual organizations.

In this paper we review the basic architecture of a Web-enabled data warehouse. Industrial practices and valuable Web sites developed by leading vendors on the topic are provided. The usage of information usually follows the 80/20 rule, e.g., 80% of usage involves only 20% of resources and 80% of queries are requested by 20% of users. This phenomenon is also reported frequently in Web-enabled data warehouse. To enrich the literature, we propose an 80/20-based methodology to build such a Web-enabled data warehouse.

Since their inception in the mid 1990’s, adoption of intranets by large and medium sized organizations has increased at much the same rate as the Web at large. Just as public Web sites have evolved over time, so have intranets. No longer are they simply used as a publishing medium; now they encompass a variety of applications designed to support decision making, complex business processes, and communication and collaboration among teams. This chapter examines some of the technical underpinnings of intranets, considers the differences among intranets, extranets and the Internet, and explores those situations and applications where intranets are preferred to traditional client/server offerings.

Electronic Commerce (EC) signifies a fundamental shift in how organizations operate, interact, and compete. Decision making is a common thread underlying all EC transactions, shaping all activities in a value chain/supply chain, and feeding off of EC information exchanges. Supporting this decision-making is an important aspect of EC. The overwhelming success of the Internet has opened uncharted opportunities for all organizations to use this technology as a basis for Web-oriented decision support systems(WODSSs). Here, we explore decision support applications that are emerging all along the EC frontier, focusing on those that are delivered across the WWW. This includes the positioning of decision support within the EC realm, a survey of decision support initiatives on the WWW, and the introduction of three taxonomies for guiding study and research: a Subject-Oriented Taxonomy for studying WODSSs used in EC in terms of the subjects about which they can provide knowledge; a Technique-Oriented Taxonomy by which a WODSS is viewed in terms of the knowledge-management technique employed to implement it; and a Coordination-Oriented Taxonomy which deals with the coordination of distributed components of a WODSS. In conclusion, we present some observations about avenues for future research and development of decision support applications in EC.

This chapter surveys the market for information and information products on the I-Way with a specific focus on marketing information that is generated, collected, and processed and/or marketed /distributed on the Internet. We describe the nature of such information and information products with illustrative examples and highlight the unique features of the Internet information market. We discuss, from economic and social perspectives, the evolution of specific organizational and social structures that are necessary for a thriving information market on the Internet and provide evidence of such trends on the I-Way.

Forecasters predict that the new century will usher in more extensive commercial impacts of the Internet that will dwarf those achieved in the late 1990s. Strategic models need to be applied to understand electronic commerce from two perspectives: one that emphasizes the structure of the entire industry, and one that emphasizes the contribution of the particular resources of an individual firm. This chapter provides structural and resource-based analysis of Internet information providers (IIPs) along with consideration of issues important in the generation, processing, storage, and transmission of information. Structural issues address risk, barriers to entry, bargaining power, and substitute goods available in an industry, while resource-based issues focus on a particular firm’s balance of property versus knowledge, as well as its information capacity, exclusivity, and overall reputation. In general, resource-based analysis implies that generation and processing of information are knowledge-based resources, while storage and transmission are property-based resources. Structural analysis implies that there is a large and ever-increasing amount of competitiveness in the industry, bringing into doubt the effectiveness of adopting a price/cost strategy. Combined analysis leads us to conclude that knowledge-based resources will be more effective in achieving competitive advantage than property-based resources because the former will provide more capability for all-important product differentiation.

In this chapter we introduce an all-digital production cycle. We explain how traditional industry value chains are being transformed in cyberspace. Our main argument is that an all-digital production cycle is emerging for electronic commerce firms with all-digital products. These all-digital products are created, manufactured, marketed, sold and delivered over the network in ten phases: (1) Strategy; (2) Concept; (3) Content Creation Plan; (4) Digital Acquisition; (5) Manufacturing; (6) Product or Service Version; (7) Electronic Commerce Policy; (8) Repository; (9) Electronic Distribution; and (10) Electronic Markets. We conclude that an electronic commerce enterprise manufacturing all-digital products may rely on a qualitatively different production cycle than a traditional business manufacturing physical products.

Auctions are formalized trading procedures in which the trading partners ‘interaction is governed by specific rules for competitive bidding and trade execution. Auction markets provide procedures for the exposure of purchase and sale orders to the market participants in order to determine the price of trade objects. Empirically we find a multiplicity of auction types with different trade objects, access rules for participants, and trading rules. During the 1980s electronic auctions have been developed and implemented which distributed not only information about the trade objects electronically but also executed the trading process itself as computer-mediated process. The extensive proliferation of electronic commerce on the Web has accelerated the diffusion of electronic auctions. In this chapter we will present a framework of constituting elements of auctions and discuss the impact of the Web on the proliferation of auctions. The move-to-the-market debate is used as background to scrutinize success factors and limitations of electronic auctions.

This chapter examines technical and non-technical issues related to privacy, security and control in Electronic Commerce. These issues are of great concern to consumers and businesses and continue to evolve at an impressive rate. This chapter presents many of the more common problems and fears that accompany electronic transactions as well as many of the behavioral and technical responses.

In this chapter, I define the scope of electronic commerce law and discuss how law can evolve in response to rapid change in social and business practices. I summarize how commercial law has adapted to electronic sales of goods using EDI and Internet distribution systems, discuss the strengths and weaknesses from a legal perspective of a new technology-based model for electronic commerce - digital signatures and public key infrastructure - and compare that model with others for managing the legal risks of electronic sales of goods. I also summarize how changes in payment system technologies and bank practices have produced new laws governing electronic payment systems; and how financial markets have moved to electronic systems for transferring investment securities.