Unit One What Is Electronic Commerce
In 1994，Jeff Bozos，a young financial analyst and fund manager who had become intrigued by the rapid growth of the Internet，founded one of the most successful retail electronic commerce sites.Bozos listed 20 products that might sell well on the Internet.After some intense analysis，he determined that books were at the top of his list.Bozos had no experience in the book-selling business，but he realized that books were small-ticket commodity items that would be easy and inexpensive to ship.He knew many customers would be willing to buy books without inspecting them in person and books were the sort of things you would purchase on impulse if properly promoted.
Bozos believed that buying books from an online seller could be more attractive than visiting to the local bookstore.He envisioned his Web sites software tracking customers purchases and recommending similar buying trends.He wanted to give his customers the option of requesting notification when a particular author published a new book.By relentlessly paying attention to every process involved in buying，promoting，selling，and shipping books，and by working to improve each process continuously，Bozos and Amazon.com have become one of the first highly visible success stories in electronic commerce.
As it has grown，Amazon.com has continued to identify strategic opportunities.In 1998，it began selling music CDs.More recently，it has added consumer electronics，toys，auctions，and hardware to its list of offerings.Five years after the opening of its Web site，Amazon.com had reached annual sales of over $1 billion.
The success of Amazon.com provides a blueprint for any business that is thinking of ways to use the Web：
①Carefully analyze the characteristics of the markets into which you sell and from which you buy；
②Consider the logistics of delivering your product or service to customers；
③Identify ways of the Web can help you to capitalize on the opportunities that exist in your business.
As important as the selling opportunities were the success of Amazon.com，but the structure of the supply side of the book business was equally important.When the company started，there were a large number of book publishers，so it would be difficult for a single supplier to restrict Amazon.coms book purchases or enter its market as a competitor.The firm located in Seattle，close to a large pool of programming talent and near one of the largest book distribution ware-houses in the world.Once again you saw that a combination of business strategy and technology helped Amazon.com to become more successful.
Defining Electronic Commerce
Many people think electronic commerce solely in terms of shopping on the part of the Internet called the World Wide Web（the Web）.In fact，electronic commerce is much broader and encompasses more business activities than just Web shopping.
Some people and businesses use the term of electronic business（or e-business）when they are discussing electronic commerce in this broader sense.However，most people use the terms of electronic commerce and electronic business interchangeably.Many not-for-profit organizations conduct “business”activities.For example，a museum might sell tickets for an upcoming special exhibition on its Web site.In this book，the term of electronic commerce（or e-commerce）is used in its broadest sense，such as the conduct of selling，buying，logistics，or other organization-management activities through the Web.
Although the Web has made online shopping possible for many businesses and individuals，electronic commerce has existed for many years.For decades，banks have been using electronic funds transfers to exchange account information electronically over private communications networks.Businesses also have been engaging in a form of electronic commerce，known as electronicdata interchange，for over 20 years.Electronic data interchange（EDI）occurs when one business transmits computer-readable data in an agreed-upon format to another business.Many large businesses have standardized the format of the paperwork they exchange with each other—such as invoices，purchase orders，and bills of lading—and transmit that information using EDI.Many firms also use EDI to authorize bank transfers instead of writing checks.
Traditional Commerce
The origins of commerce occurred before recorded history，when our remote ancestors firstly decided to specialize their everyday activities.Instead of growing its own crops，hunting for its own meat，and making its own tools，families developed skills in one of these areas and traded for their other needs.For example，the tool-making family would exchange tools for grain from the crop-growing family.Services were bought and sold in these primitive economies，too.Eventually，cattle and metal coins became accepted as currency，making transactions easier to settle.Commerce，or doing business，is a negotiated exchange of valuable objects or services between at least two parties（a buyer and a seller）and includes all activities that each of the parties undertakes to complete the transaction.
Buyer and Seller Roles in Traditional Electronic Commerce
Buyers begin the process of commerce by identifying a need.For example，an individual may decide that it is time for buying a new car，or a business manager may notice that a machine is wearing out.Once buyers have identified their specific needs，they must find products or services that will satisfy those needs.In traditional commerce，buyers use a variety of search techniques.They may consult catalogs，ask friends，read advertisements，or examine directories and so on.The Yellow Pages is a good example of a directory that buyers often use to find products and services.Buyers may consult salespersons to gather information about specific features and capabilities of products they are considering for purchase.Business firms often have highly structured procedures for finding products and services that satisfy recurring needs of the business.
After buyers have selected a product or service that will meet the identified need，they must select a vendor that can supply the desired product or service.Buyers in traditional commerce contact vendors in a variety of ways，including by telephone，by mail，or at trade shows.Once the buyer chooses a vendor，the buyer negotiates a purchase transaction.This transaction may have many elements—such as a delivery date，method of shipment，price，warranty，and payment terms—that will often include detailed specifications the buyer can confirm by inspection when the product is delivered or the service is performed.This inspection process may be a very complicated step.For example，considering the complex ordering，delivery，and inspection logistics that must occur to provide the displays you see in a supermarkets produce section.
When the buyer is satisfied that the purchased product or service has met the terms and conditions agreed to by both buyer and seller，the buyer will pay for the purchase.After the sale is finished，the buyer may have further contact with the seller regarding warranty claims，upgrades，and regular maintenance.
Each action taken by a buyer engaging in commerce has a corresponding action that is taken by a seller.Sellers often undertake market research to identify potential customers needs.Even businesses that have been selling the same product or service for many years are always looking for ways to improve and expand their offerings.Firms conduct surveys，employ salespersons to talk with customers，run focus groups，and hire outside consultants to help them make decisions during this identification process.
Once a seller identifies potential customers needs，it must then create products and services that can meet those needs.This creation activity includes design，testing，and production activities.Then sellers must make potential customers aware that the new product or service exists.Sellers engage in many different kinds of advertising and promotional activities that can communicate information about their products and services to exist and attract potential customers.
When a customer responds to the sellers promotion activities，the two parties must negotiate the details of a purchase transaction.In some cases，this negotiation is simple.For example，many retail transactions involve nothing more than a buyer entering a sellers store，selecting items to purchase，and paying for them.In other cases，purchase transactions can require prolonged negotiations to settle the terms of delivery，inspection，testing，and acceptance.
After the seller and buyer resolve the logistics and deliver details of the purchase transaction，the seller ships the goods or provides the service and sends an invoice to the buyer.In some businesses，the seller will also provide a monthly billing statement to each customer that summarizes its invoicing and payment activities.In some cases，the seller will require payment before or at the time of shipment.However，most businesses sell to each other on credit，so the seller must keep a record of the sale and wait for the customer to pay.Most businesses maintain sophisticated systems for receiving and processing customer payments；they want to track the amounts they are owed and ensure that the payments they do receive are credited to the proper customer and invoice.
Following the conclusion of the sale transaction，the seller will often provide continuing after-sale support for the product or service.In many cases，the seller is bound by contract or statute to guarantee or warrant that the product or service sold will perform in a satisfactory manner.The seller provides support，maintenance，and warranty work to help ensure that the customer is satisfied and will return to buy again.
Evolution of Electronic Commerce
The goal of electronic commerce is to use electronic data transmission technologies，primarily those that are parts of the Internet and the Web，to improve existing business processes，and to identify new business opportunities.Over thousands of years people have conducted business with each other，they have adopted new tools and technologies and these tools and technologies have become available.For example，the advent of sailing ships in ancient times opened new avenues of trade to buyers and sellers.The printing press，the steam engine，and the telephone each changed the way people conducted commerce activities.
The Internet was opened to commercial use during the early 1990s.It also saw the development of Web server and Web browser software during that period of time.By 1995，the rapid growth of the Internet and the Web had combined with the proliferation of personal computers（PCs）in homes and businesses to create a new communications network that could support business transactions that never had before.These three factors—the commercialization of the Internet，the invention of the Web，and the proliferation of networked PCs—combined to make electronic commerce possible.The number of Web sites is currently estimated to be well over eight million and the number of Web documents was over a billion.Each Web site can have hundreds or even thousands of individual Web pages.As more people obtain access to the Web，commercial nterest in using the Web to conduct business will increase and the variety of the Web that individuals use will become even greater.Although the Web has already grown very rapidly，many experts believe that it will continue to grow at an increasing rate in the foreseeable future.The emergence of the Internet and the Web as new data communication tools are just another step in the increasing efficiency of business processes.
International Nature of Electronic Commerce
Many of the advantages that electronic commerce offers arise from its ability to reducing transaction costs.By making communication quick and inexpensive，technology makes commerce less expensive for both businesses and individuals.In addition to being inexpensive and easy to use，the Internet and the Web also offer people an unprecedented degree of geographic reach.The Internet brings people together from every country in the world because it reduces the distance between person and person in many ways.The predominant language on the Web is English，although sites in other languages and in multiple languages are appearing with increasing frequency.Once a business overcomes the language barrier，the technology exists for it to conduct electronic commerce with any other business or consumer，anywhere in the world.
Unfortunately，the political structures of the world have not kept up with Internet technology，so doing business internationally presents a number of challenges.Currency conversions，tariffs，import and export restrictions，local business customs，and the laws of each country in which a trading partner resides can all make international electronic commerce difficult.Many of the international issues that arise relate to legal，tax，and privacy concerns.Each country has the right to pass laws and levy taxes on businesses that operate within its jurisdiction.European countries，for example，have very strict laws that limit the collection and use of personal information that companies gather in the course of doing business with consumers.Even within the United States，individual states and counties have the power to levy sales taxes and use taxes on goods and services.In other countries，national sales and value-added taxes are imposed on one or even more comprehensive list of business activities.
Advantages and Disadvantages of Electronic Commerce
To be successful in electronic commerce，managers must identify the business processes that they can accomplish more effectively by using electronic commerce technologies.Some business processes use traditional commerce activities very effectively，and technology can not improve them.Products that buyers prefer to touch，smell，or examine closely are difficult to sell by using electronic commerce.For example，customers might not buy high-fashion clothing or perishable food products if they can not examine the products closely before purchasing them.Retail merchants have years of experience in store design，layout，and product display knowledge.This knowledge is called merchandising.Many salespeople have developed ways of identifying customer needs and matching products or services to those needs.Merchandising and personal selling can be difficult to practice over an electronic link.
Branded merchandise and products，such as books or CDs，can be sold easily by using electronic commerce.Because one copy of a new book is identical to other copies，and because the customer is not concerned about fit，freshness，or other qualities，customers are willing to order a book without examining the specific copy they will receive.The advantages of electronic commerce，including the ability of one site to offer a wider selection of titles than even the largest physical bookstore，can outweigh the advantages of a traditional bookstore，such as the customers ability to browse.
（1）Advantages of electronic commerce
Companies are interested in electronic commerce because，quite simply，it can help increase profits.All of the advantages of electronic commerce for business entities are explained in one statement：Electronic commerce can increase sales and decrease costs.For example，advertising on the Web can send a small firms message to every country in the world.A firm can use electronic commerce to reach narrow market segments that are widely scattered geographically.The Internet and the Web are particularly useful in creating virtual communities that become ideal market targets.
A business can reduce the costs of handling sales inquiries，providing price quotes，and determining product availability by using electronic commerce in its sales support and order-taking processes.Cisco Systems sold almost 70％ of its computer equipment via the Web.Because no customer service representatives were involved in these sales，Cisco estimates that it avoided handling 500，000 calls per month for an annual savings of over 500 million.
Just as electronic commerce increases sales opportunities for the sellers，it also increases purchasing opportunities for the buyers.Businesses can use electronic commerce in their purchasing processes to identify new suppliers and business partners.Negotiating price and delivery terms is easier because the Web can provide competitive bid information very efficiently.Electronic commerce increases the speed and accuracy by the way with which businesses exchange information，which reduces costs on both sides of transactions.
Electronic commerce provides consumers with a wider range of choices than traditional commerce，because consumers can consider many different products and services from a wider variety of sellers.Consumers can evaluate their options 24 hours a day.Some consumers prefer a great deal of information to use in deciding a purchase；others prefer less.Electronic commerce provides consumers with an easy way to customize the level of detail in the information they obtain about a prospective purchase.Instead of waiting some days for the mail to bring a catalog or product specification sheet，or even few minutes for a fax transmission，consumers can have instant access to detailed information on the Web.Some products，such as software，audio clips，or images，can even be delivered via the Internet，which reduces the time customers must wait to begin enjoying their purchases.
The benefits of electronic commerce also extend to the general welfare of society.Electronic payments of tax refunds，public retirement，and welfare support cost less to issue and arrive securely and quickly when transmitted via the Internet.Furthermore，electronic payments can be easier to audit and monitor than payments made by check and can help protect against fraud and theft losses.To the extent that electronic commerce enables people to work at home，we all benefit from the reduction in commuter-caused traffic and pollution.Electronic commerce can make products and services available in remote areas.For example，distance education is making it possible for people to learn skills and earn degrees no matter where they live or which hours they have available to study.
（2）Disadvantages of electronic commerce
Some business processes may never lend themselves to electronic commerce.For example，unique and high-cost items，such as jewelry or antiques，may continue to be difficult to inspect from a remote location.Most of the disadvantages of electronic commerce today，however，stem from the newness and rapidly developing pace of the underlying technologies.These disadvantages will disappear as electronic commerce matures and becomes more available to be accepted by the general population.Many products and services require a critical mass of potential buyers who are equipped and willing to buy via the Internet.
Another example of a technology problem on the Web today is that the color settings on computer monitors，vary widely.Clothing retailers find it difficult to give customers an accurate idea of what a products color will look like when it arrives.Most online clothing stores will send a fabric swatch on request，which also gives the customer a sense of the fabrics texture.As technology improves，this disadvantage will become less of an issue.
Businesses often calculate their potential profits before committing to any new technology.These calculations have been difficult to perform for investments in electronic commerce because the costs and benefits have been hard to quantify.Technology costs can change dramatically during electronic commerce implementation projects because the technologies can change so rapidly.
Many firms have trouble recruiting and retaining employees with the technological，design，and business process skills needed to create an effective electronic commerce presence.Another problem that firms are facing，the firms that want to do business on the Internet，is the difficulty of integrating existing databases and transaction-processing software designed for traditional commerce into the software that enables electronic commerce.
In addition to the technology and software issues，many businesses face cultural and legal impediments to electronic commerce.Some consumers are still afraid to send their credit card numbers via the Internet.Other consumers are simply resistant to change and are uncomfortable to view merchandise on a computer screen rather than in person.The legal environment in which electronic commerce is conducted is full of unclear and conflicting laws.In many cases，government regulators have not kept up with technologies.Laws that govern commerce were written when signed documents were a reasonable expectation in any business transaction.As more businesses and individuals find many benefits of electronic commerce to be compelling，many of these technology and culture-related disadvantages will disappear.