Unit 1: INTRODUCTION TO ELECTRONIC COMMERCE

Electronic commerce (e-commerce) remains a relatively new, emerging and constantly changing
area of business management and information technology. E-commerce is digitally enabled
commercial transactions between and among organizations and individuals. Digitally enabled
transactions include all transactions mediated by digital technology e.g. Internet. For the most
part, this means transactions that occur over the Internet and the Web. Commercial
transactions involve the exchange of value (e.g., money) across organizational or individual
boundaries in return for products and services. Exchange of value is important for
understanding the limits of e-commerce. Without an exchange of value, no commerce occurs.

Some of the definitions of e-commerce often heard and found in publications and the media
are:
• Electronic Commerce (EC) is where business transactions take place via telecommunications
networks, especially the Internet.
• Electronic commerce describes the buying and selling of products, services, and information
via computer networks including the Internet.
• Electronic commerce is about doing business electronically.
• E-commerce is defined as the conduct of a financial transaction by electronic means.
THE DIFFERENCE BETWEEN E-COMMERCE AND E-BUSINESS
E-business refers primarily to the digital enablement of transactions and processes within a
firm, involving information systems under the control of the firm as shown in figure below.
For the most part, in our view, e-business does not include commercial transactions involving an
exchange of value across organizational boundaries. For example, a company’s online inventory
control mechanisms are a component of e-business, but such internal processes do not directly
generate revenue for the firm from outside businesses or consumers, as e-commerce, by
definition, does. It is true, however, that a firm’s e-business infrastructure provides support for
online e-commerce exchanges; the same infrastructure and skill sets are involved in both e-
business and e-commerce. E-commerce and e-business systems blur together at the business
firm boundary, at the point where internal business systems link up with suppliers or customers,
for instance. E-business applications turn into e-commerce precisely when an exchange of value
occurs (see Mesenbourg, U.S. Department of Commerce, August 2001 for a similar view).

BENEFITS OF E-COMMERCE
The benefits of e-commerce can be seen to affect three major stakeholders: organizations,
consumers and society.

1) Benefits of e-commerce to organizations

International marketplace . What used to be a single physical marketplace located in a
geographical area has now become a borderless marketplace including national and
international markets. By becoming e-commerce enabled, businesses now have access to
people all around the world.
Operational cost savings. The cost of creating, processing, distributing, storing and retrieving
paper-based information has decreased.

Mass customization. E-commerce has revolutionized the way consumers buy goods and
services. In the past when Ford first started making motor cars, customers could have any color
so long as it was black. Now customers can configure a car according to their specifications
within minutes on-line via the www.ford.com website.
Enables reduced inventories and overheads by facilitating ‘pull’-type supply chain management
– this is based on collecting the customer order and then delivering through JIT (just-in-time)
manufacturing. This is particularly beneficial for companies in the high technology sector, where
stocks of components held could quickly become obsolete within months. For example,
companies like Motorola (mobile phones), and Dell (computers) gather customer orders for a
product, transmit them electronically to the manufacturing plant where they are manufactured
according to the customer’s specifications (like color and features) and then sent to the
customer within a few days.
Lower telecommunications cost. The Internet is much cheaper than value added networks
(VANs) which were based on leasing telephone lines for the sole use of the organization and its
authorized partners. It is also cheaper to send a fax or e-mail via the Internet than direct dialing.
Digitization of products and processes. Particularly in the case of software and music/video
products, which can be downloaded or e-mailed directly to customers via the Internet in digital
or electronic format.
No more 24-hour-time constraints. Businesses can be contacted by or contact customers or
suppliers at any time.

2) Benefits of e-commerce to consumers

24/7 access. Enables customers to shop or conduct other transactions 24 hours a day, all year
round from almost any location. For example, checking balances, making payments, obtaining
travel and other information.
More choices. Customers not only have a whole range of products that they can choose from
and customize, but also an international selection of suppliers.

Price comparisons. Customers can ‘shop’ around the world and conduct comparisons either
directly by visiting different sites. (For example, www.moneyextra.co.uk for financial products
and services).
Improved delivery processes. This can range from the immediate delivery of digitized or
electronic goods such as software or audio-visual files by downloading via the Internet, to the
on-line tracking of the progress of packages being delivered by mail or courier.
An environment of competition where substantial discounts can be found or value added, as
different retailers for customers.

3) Benefits of e-commerce to society

Enables more flexible working practices, which enhances the quality of life for a whole host of
people in society, enabling them to work from home. It also potentially reduces environmental
pollution as fewer people have to travel to work regularly.
Connects people. Enables people in developing countries and rural areas to enjoy and access
products, services, information and other people which otherwise would not be so easily
available to them.
Facilitates delivery of public services. For example, health services available over the Internet
(on-line consultation with doctors or nurses), filing taxes over the Internet through the Inland
Revenue website.
LIMITATIONS OF E-COMMERCE
There was much hype surrounding the Internet and e-commerce over the last few years of the
twentieth century. Much of it promoted the Internet and e-commerce as the panacea for all ills,
which raises the question, are there any limitations of e-commerce and the Internet?
Isaac Newton’s 3rd Law of Motion, ‘For every action there is an equal and opposite reaction’
suggests that for all the benefits there are limitations to e-commerce. These again will be dealt
with according to the three major stakeholders – organizations, consumers and society.

Limitations of e-commerce to organizations

Lack of sufficient system security, reliability, standards and communication protocols.
There are numerous reports of websites and databases being hacked into, and security holes in
software. For example, Microsoft has over the years issued many security notices and ‘patches’
for their software. Several banking and other business websites, including Barclays Bank,
Powergen and even the Consumers’ Association in the UK, have experienced breaches in
security where ‘a technical oversight’ or ‘a fault in its systems’ led to confidential client
information becoming available to all.
Rapidly evolving and changing technology, so there is always a feeling of trying to ‘catch up’ and
not be left behind.

Under pressure to innovate and develop business models to exploit the new opportunities
which sometimes leads to strategies detrimental to the organization. The ease with which
business models can be copied and emulated over the Internet increase that pressure and
curtail longer-term competitive advantage.
Facing increased competition from both national and international competitors often leads to
price wars and subsequent unsustainable losses for the organization.

Problems with compatibility of older and ‘newer’ technology. There are problems where older
business systems cannot communicate with web based and Internet infrastructures, leading to
some organizations running almost two independent systems where data cannot be shared.
This often leads to having to invest in new systems or an infrastructure, which bridges the
different systems. In both cases this is both financially costly as well as disruptive to the efficient
running of organizations.
Limitations of e-commerce to consumers
Computing equipment is needed for individuals to participate in the new ‘digital’ economy,
which means an initial capital cost to customers.

A basic technical knowledge is required of both computing equipment and navigation of the
Internet and the World Wide Web.

Cost of access to the Internet, whether dial-up or broadband tariffs.

Cost of computing equipment. Not just the initial cost of buying equipment but making sure that
the technology is updated regularly to be compatible with the changing requirement of the
Internet, websites and applications.
Lack of security and privacy of personal data. There is no real control of data that is collected
over the Web or Internet. Data protection laws are not universal and so websites hosted in
different countries may or may not have laws which protect privacy of personal data.
Physical contact and relationships are replaced by electronic processes. Customers are unable to
touch and feel goods being sold on-line or gauge voices and reactions of human beings.
A lack of trust because they are interacting with faceless computers.
Limitations of e-commerce to society
Breakdown in human interaction. As people become more used to interacting electronically
there could be an erosion(divide) of personal and social skills which might eventually be
detrimental to the world we live in where people are more comfortable interacting with a
screen than face to face.
Social division. There is a potential danger that there will be an increase in the social divide
between technical haves and have-nots – so people who do not have technical skills become
unable to secure better-paid jobs and could form an underclass with potentially dangerous
implications for social stability.
Reliance on telecommunications infrastructure, power and IT skills, which in developing
countries nullifies the benefits when power, advanced telecommunications infrastructures and
IT skills are unavailable or scarce or underdeveloped.
Wasted resources. As new technology dates quickly how do you dispose of all the old
computers, keyboards, monitors, speakers and other hardware or software?
Facilitates Just-In-Time manufacturing. This could potentially cripple an economy in times of
crisis as stocks are kept to minimum and delivery patterns are based on pre-set levels of stock
which last for days rather than weeks.
Difficulty in policing the Internet, which means that numerous crimes can be perpetrated and
often go undetected. There is also an unpleasant rise in the availability and access of obscene
material and ease with which pedophiles and others can entrap children by masquerading in
chat rooms.
SEVEN UNIQUE FEATURES OF E-COMMERCE TECHNOLOGY
1 Ubiquity: In traditional commerce, a marketplace is restricted i.e. we can be in limited
physical area to buy or sell. Whereas E-Commerce is ubiquitous meaning that it is
available just about everywhere, at all times. It make possible to shop from your
desktop, at home, at work or even from your car, using mobile commerce. The result is
called a market space - a marketplace extended beyond traditional boundaries and
removed from a temporal and geographic location. From a consumer perspective,
ubiquity reduces transaction costs – the costs of participating in a market. To transact, it
is no longer necessary that you spend time and money traveling to a market.
 2 Global Reach: Unlike traditional commerce, e-commerce technology permits
commercial transaction to cross cultural and national boundaries far more conveniently
and cost effectively. As a result, the potential market size for e-commerce merchants is
roughly equal to the size of the world’s online population.
3 Universal Standards: One strikingly unusual feature of e-commerce technologies is that
the technical standards of the Internet, and therefore the technical standards for
conducting e-commerce, are universal standards – they are shared by all nation around
the world. In contrast, most traditional commerce technologies differ from one nation to
the next. For instance, television and radio standards differ around the world, as doe’s
cell telephone technology. The universal technical standards of e-commerce greatly
lower market entry cost –t he cost merchants must pay just to bring their goods to
market.
4 Richness: With the use of e-commerce technology merchant can present their message
in effective way. Information richness refers to the complexity and content of the
message.
5 Interactivity: E-Commerce technologies are interactive, meaning they allow two-way
communication between merchant and consumer. Television, for instant, cannot ask the
viewer any questions, enter into a conversation with a viewer, or request customer
information be entered into a form. In contrast, all of these activities are possible on an
e-commerce Web site. Interactivity allows an online merchant to engage a consumer in a
ways similar to a face-to-face experience, but on a much more massive, global scale.
6 Information density: The Internet and the Web vastly increase information density – the
total amount and quality of the information available to all market participants,
consumers and merchants alike. E-commerce technologies reduce information
collection, storage, processing and communication costs. At the same time, these
technologies increase greatly the accuracy and timeliness of information – making
information more useful and important than ever. As a result, information becomes
more plentiful, cheaper and of higher quality.
7 Personalization/Customization: E-commerce technologies permit personalization:
Merchants can target their marketing message to specific individuals by adjusting the
message. The technology also permits customization – changing the delivered product
or service based on a user’s preference or prior behavior.

E-COMMERCE FRAMEWORK
E-Commerce applications will be built on the existing technology infrastructure - a myriad of
computers, communication networks, and communication software forming the nascent
Information Superhighway. The technology infrastructure of the Internet is both an enabler and
a driver of change. An infrastructure is defined as “the foundation of a system.” In this case, the
technological foundation of the Internet, simply put, enables the running of the e-commerce
enterprises. The hardware backbone of computers, routers, servers, fiber optics, cables,
modems, and other network technologies provides half of the technology equation. The other
half includes the soft-ware and communications standards that run on top of the hardware,
including the core protocols for the Web. Understanding technology infrastructure —and there-
fore understanding what is and is not achievable—is essential to formulating a company’s vision
and strategy.

The framework for e-Commerce consists of three parts as shown in below figure.
1 The first part consists of a variety of electronic commerce applications including both
inter- and intra-organizational and electronic market examples such as Supply Chain
Management, Video-on-Demand, Procurement and purchasing, On-line marketing and
advertising, Home shopping etc.
2 The second part of the building blocks of the infrastructure consists of:
Common business services, for facilitating the buying and selling process.
Messaging and information distribution, as a means of sending and retrieving
information ( ex-EDI, e-mail, P2P file transfer)
Multi-media content and network publishing, for creating a product and a means to
communicate about it.
Information Superhighway infrastructure consisting of telecommunication, cable
operator, ISPs , Wireless technologies and Internet.

3 The third part consists of the public policy and technical standards necessary to support
the applications and the infrastructure.
Public policies govern issues like universal access, privacy, and information pricing. The
public policy infrastructure affects not only the specific business but also direct and
indirect competitors. It should take into consideration of:
 Cost of accessing information
 Regulation to protect consumers from fraud and protect their right to privacy.
 Policies of global information traffic to detect information pirating and obscene sites.
Technical Standards governs issues like technology for communication and as well as for
Internet.
Introduction to Business Model
A business model is the method of doing business by which a company can sustain itself, that is,
generate revenue. The business model spells out how a company makes money by specifying
where it is positioned in the value chain.
Some models are quite simple. A company produces goods or services and sells it to customers.
If all goes well, the revenues from sales exceed the cost of operation and the company realizes
profit. Other models can be more complex. Radio and television broadcasting is a good
example. The broadcaster is part of a complex network of distributors, content creators,
advertisers, and listeners or viewers. Who makes money and how much, It is not always clear at
the outset. The bottom line depends on many competing factors.
For our understanding, e-commerce can be defined as any form of business transaction in which
the parties interact electronically.' A transaction in an electronic market represents a number of
interactions between parties. For instance, it could involve several trading steps, such as
marketing, ordering, payment, and support for delivery. An electronic market allows the
participating sellers and buyers to exchange goods and services with the aid of information
technology. Electronic markets have three main functions such as: (i) matching buyers and
sellers, (ii) facilitating commercial transactions, and (iii) providing legal infrastructure.
Information technology permeates all the three functions and also helps to increase market
efficiency and reduce transaction costs.
The interaction between participants is supported by electronic trade processes that are
basically search, valuation, payment and settlement, logistics, and authentication, as shown in
Figure 2.1. The Internet and the World Wide Web allow companies to efficiently implement
these key trading processes. For instance, many search services and brokers are available to
help buyers find information, products, and merchants in electronic markets.
E-commerce can be formally defined as technology-mediated exchanges between parties
(individuals, organizations, or both) as well as the electronically-based intra- or
interorganizational activities that facilitate such exchanges. It is global. It favors intangible things
— ideas, information, and relationships. And it is intensely interlinked. These three attributes
produce a new type of marketplace and society.

A company's business model is the way in which it conducts business in order to generate
revenue. In the new economy, companies are creating new business models and reinventing old
models. Reading the literature, we find business models categorized in different ways. Presently,
there is no single, comprehensive and cogent taxonomy of Web business models that one can
point to. Although there are many different ways to categorize e-business models, they can be
broadly classified as follows:
 E-Business models based on the relationship of Transaction Parties
 E-Business models based on the relationship of Transaction Types
 E-Business models based on the relationship of Transaction Parties
Electronic markets are emerging in various fields. Different industries have markets with
different characteristics. For example, an information B2C market differs in many respects from
the automotive B2B market.
The information B2C market represents companies that sell digital information goods, such as
news, articles, music, books, or digital videos. In the information B2C market, the electronic
infrastructure not only helps match customers and sellers, but also acts as the distribution
channel, delivering products to customers.
In the automotive B2B market, the products traded, such as parts and components of cars, have
a high degree of specificity. The market infrastructure used is to be mainly based on Electronic
Data Interchange (EDI) over expensive VAN services. EDI involves the exchange of standardized,
structured information between organizations, permitting direct communication between
computer systems. B2B is also a closed market in the sense that the number of participants
involved in trading is limited and known a prior.
Understanding the nature of the market's requirements is critical for creating the underlying e-
business infrastructure. The relation between B2B and B2C models is clearly shown in Figure
2.3.

B2B covers business transactions along the various interactions existing in the value chain from
producers of raw materials to retailers and consumers including manufacturers and distributors.
On the contrary. B2C reflects only the interactions between a customer and a retailer. Basically,
B2C transactions include the following steps: (i) account acquisition. (ii) product discovery
through search and browse,
(iii) price negotiation, (iv) payment, and (v) product delivery. In some cases, customer services
may also exist.
E-commerce can be classified according to the transaction partners such as
a. business to consumer (B2C),
b. business-to-business (B2B),
c. business-to-government (B2G),
d. consumer to-consumer (C2C), and
e. consumer-to-business (C2B).
Within these broad categories, there are a number of variations in the way the models are
implemented. Table 2.1 summarizes souse of the current e-business models.
1) Business-to-Consumer (B2C)
The B2C model involves transactions between business organizations and consumers. It
applies to any business organization that sells its products or services to consumers over
the Internet. These sites display product information in an online catalog and store it in a
database. The B2C model also includes services online banking, travel services, and health
information and many more as shown in figure below.

Consumers are increasingly going online to shop for and purchase products, arrange
financing, arrange shipment or take delivery of digital products such as software, and get
service after the sale. B2C e-business includes retail sales, often called e-retail (or e-tail),
and other online purchases such as airline tickets, entertainment venue tickets, hotel
rooms, and shares of stock.

Some B2C e-businesses provide high-value content to consumers for a subscription fee.
Examples of e-business following this subscription model include the Wall Street Journal
(financial news and articles), Consumer Reports (product reviews and evaluations), and
ediels.com (nutritional counseling).
B2C e-business models include virtual malls, which are websites that host many online
merchants. Virtual malls typically charge setup, listing, or transaction fees to online
merchants, and may include transaction handling services and marketing options. Examples
of virtual malls include excite.com, choice mall, women.com, networkweb.com,
amazon.com, Zshops.com, and yahoo.com.

E-tailers that offer traditional or Web-specific products or services only over the Internet
are sometimes called virtual merchants, and provide another variation on the B2C model.
Examples of virtual merchants include amazon.com (books. electronics, toys, and music),
eToys.com (children's books and toys), and ashford.com (personal accessories).

Some businesses supplement a successful traditional mail-order business with an online

shopping site, or move completely to Web-based ordering. These businesses are sometimes
called catalogue merchants. Examples include avan.com (cosmetics and fragrances), chefs
(cookware and kitchen accessories), Omaha Steaks (premium steaks, meats, and other
gourmet food), and Harry and David (gourmet food gifts).

Many people were very excited about the use of B2C on the Internet, because this new
communication medium allowed businesses and consumers to get connected in entirely new
ways. The opportunities and the challenges posed by the B2C e-commerce are enormous. A
large amount of investment has gone into this and many sites have either come up or are
coming up daily to tap this growing market.

Some of the reasons why one should opt for B2C are:
1. Inexpensive costs, big opportunities. Once on the Internet, opportunities are
immense as companies can market their products to the whole world without
much additional cost.
2. Globalization. Even being in a small company, the Web can make you appear to be
a big player which simply means that the playing field has been levelled by e-
business. The Internet is accessed by: millions of people around the world, and
definitely, they are all potential customers.
3. Reduced operational costs. Selling through the Web means cutting down on paper
costs, customer support costs, advertising costs, and order processing costs.
4. Customer convenience. Searchable content, shopping carts. promotions, and
interactive and user-friendly interfaces facilitate customer convenience. Thus,
generating more business. Customers can also see order status, delivery status,
and get their receipts online.
5. Knowledge management. Through database systems and information
management, you can find out who visited your site, and how to create, better
value for customers.
Processes in B2C (How Does B2C Work?)
B2C e-commerce is more than just an online store. It really is about managing the entire
process, but just using technology as a tool for order processing and customer support.
Figure 2.5 depicts the processes in B2C.

The B2C process is now explained in greater details:

1. Visiting the virtual mall. The customer visits the mall by browsing the online
catalogue —a very organized manner of displaying products and their related
information such as price, description, and availability. Finding the right product
becomes easy by using a keyword search engine. Virtual malls may include a basic
to an advanced search engine, product rating system, content management,
customer support systems, bulletin boards, newsletters and other components
which make shopping convenient for shoppers.
2. Customer registers. The customer has to register to become part of the site's
shopper registry. This allows the customer to avail of the shop's
complete services. The customer becomes a part of the
company's growing database and can use the same for
knowledge management and data mining.

3. Customer buys products. Through a shopping cart

system, order details, shipping charges, taxes,
additional charges

and price totals are presented in an organized manner.

The customer can even change the quantity of a
certain product. Virtual malls have a very
comprehensive shopping system, complete with check-
out forms.

4. Merchant processes the order. The merchant then

processes the order that is received from the previous
stage and fills up the necessary forms.
5. Credit card is processed. The credit card of the
customer is authenticated through a payment gateway
or a bank. Other payment methods can be used as well, such as debit cards, prepaid
cards, or bank-to-bank transfers.

6. Operations management. When the order is passed on to the logistics people, the
traditional business operations will still be used. Things like inventory management.
 Total quality management, warehousing, optimization and project management should
still be incorporated even though it is an e-business. Getting the product to the customer
is still the most important aspect of e-commerce.

7. Shipment and delivery. The product is then shipped to the customer. The customer
can track the order/delivery as virtual malls have a delivery tracking module on the
website which allows a customer to check the status of a particular order.

8. Customer receives. The product is received by the customer, and is verified. The
system should then tell the firm that the order has been fulfilled.

9. After-sales service. After the sale has been made, the firm has to make sure that it
maintains a good relationship with its customers. This is done through customer
relationship management or CRM.

The example of the www.amazon.com site also involves the B2C model in which the
consumer searches for a book on their site and places an order, if required. This

implies that a complete business solution might be an integration solution of more than
one business model. For example, www.amazon.com includes the B2B model in which the
publishers transact with Amazon and the B2C model in which an individual consumer
transact with the business organization. The B2C model of e-commerce is more prone to
the security threats because individual consumers provide their credit card and personal
information n the site of a business organization. In addition, the consumer might doubt
that his information is secured and used effectively by the business organization. This is
the main reason why the B2C model is not very widely accepted. Therefore, it becomes
very essential for the business organizations to provide robust security mechanisms that
can guarantee a consumer for securing his/her information.

2) Business to Business (B2B)

The B2B model involves electronic transactions for ordering, purchasing, as well as other
administrative tasks between business houses. It includes trading goods, such as business
subscriptions, professional services, manufacturing, and wholesale dealings. Sometimes in
the B2B model, business may exist between virtual companies, neither of which may have
any physical existence. In such cases, business is conducted only through the Internet.

Let us look at the example of www.amazon.com. As you know, www.amazon.com is an

online bookstore that sells books from various publishers including Wrox, O’Reilly, Premier
 Press, and so on. In this case, the publishers have the option of either developing their
own site or displaying their books on the Amazon site (www.amazon.com), or both. The
publishers mainly choose to display their books on www.amazon.com at it gives them a
larger audience. Now, to do this, the publishers need to transact with Amazon, involving
business houses on both the ends, is the B2B model as shown in figure below.

Thus, B2B is that model of e-commerce whereby a company conducts its trading and other
commercial activity through the Internet and the customer is another business itself. This
essentially means commercial activity between companies through the Internet as a medium.

This is supposed to be a huge opportunity area on the Web. Companies have by and large
computerized all the operations worldwide and now they need to go into the next stage by
linking their customers and vendors. This is done by supply chain software, which is an integral
part of your ERP application. Companies need to set up a backbone of B2B applications, which
will support the customer requirements on the Web. Many B2B sites are company and industry
specific, catering to a community of users, or are a combination of forward and backward
integration. Companies have achieved huge savings in distribution-related costs due to their
B2B applications.

Major Advantages of B2B

1. Direct interaction with customers. This is the greatest advantage of e-business.
2. Focused sales promotion. This information gives authentic data about the likes,
dislikes and preferences of clients and thus helps the company bring out focused
sales promotion drives which arc aimed at the right audience.
3. Building customer loyalty. It has been observed that online customers can be more
loyal than other customers if they are made to feel special and their distinct identity
is recognized and their concerns about privacy are respected. It has also been found
that once the customers develop a binding relationship with a site and its product,
they do not like to shift loyalties to another site or product.
 4. Scalability. This means that the Web is open and offers round-the-clock access. This
provides an access never known before, to the customer. This access is across
locations and time zones. Thus a company is able to handle many more customers
on a much wider geographical spread if it uses an e-business model. The company
can set up a generic parent site for all locations and make regional domains to suit
such requirements. Microsoft is using this model very successfully.

5. Savings in distribution costs. A company can make huge savings in distribution,

logistical and after-sales support costs by using e-business models. Typical examples
are of computer companies, airlines, and telecom companies.

Processes for Business-to-Business Transactions and Models

B2B interactions involve much more complexity than B2C. For instance, typical B2B
transactions include, among others, the following steps:

• review catalogues,
• identify specifications.
• define requirements,
• post request for proposals (REP).
• review vendor reputation.
• select vendor.
• fill out purchase orders (PO).
• send PO to vendor,
• prepare invoice,
• make payment,
• arrange shipment, and
• organize product inspection and reception.

Due to the large number of transactions involved, business-to-business operations can be

too risky if e-business sites cannot guarantee adequate quality of service in terms of
performance, availability, and security.

3) Consumer to Consumer (C2C)

The C2C model involves transaction between consumers. Here, a consumer sells directly to
another consumer. eBay and www.bazee.com are common examples of online auction Web
sites that provide a consumer to advertise and sell their products online to another
consumer.
 However, it is essential that both the seller and the buyer must register with the auction
site. While the seller needs to pay a fixed fee to the online auction house to sell their
products, the buyer can bid without paying any fee. The site brings the buyer and seller
together to conduct deals as shown in figure below.

Let us now look at the previous figure with respect to eBay. When a customer plans to sell
his products to other customers on the Web site of eBay, he first needs to interact with an
eBay site, which in this case acts as a facilitator of the overall transaction. Then, the seller
can host his product on www.ebay.com, which in turn charges him for this. Any buyer can
now browse the site of eBay to search for the product he interested in. If the buyer comes
across such a product, he places an order for the same on the Web site of eBay. eBay now
purchase the product from the seller and then, sells it to the buyer. In this way, though the
transaction is between two customers, an organization acts as an interface between the
two organizations.

There are also a number of new consumer-to-consumer expert information exchanges that
are expected to generate $6 billion in revenue by 2005. Some of these exchanges, such as
AskMe.com and abuzz, are free, and some allow their experts to negotiate fees with
clients.

InfoRocket.com, one of the first question-and-answer marketplaces, is driven by a person-

to-person auction format. The InfoRocket.com bidding system allows a person who
submits a question to review the profiles of the "experts" who offer to answer the
question. When the person asking the question accepts an "expert" offer, infoRocket.com
bills the person's credit card, delivers the answer, and takes a 20 percent commission.

4) Consumer to Business (C2B)

The C2B model involves a transaction that is conducted between a consumer and a
business organization. It is similar to the B2C model, however, the difference is that in this
case the consumer is the seller and the business organization is the buyer. In this kind of a
transaction, the consumers decide the price of a particular product rather than the
supplier. This category includes individuals who sell products and services to organizations.
For example, www.monster.com is a Web site on which a consumer can post his bio-data
for the services he can offer. Any business organization that is interested in deploying the
services of the consumer can contact him and then employ him, if suitable as shown in
figure.

C2B Business Model

Let us look at another example of the C2B model. William Ward needs to buy an airline
ticket for his journey from New York to New Jersey. William needs to travel immediately.
Therefore, he searches a Web site for a ticket. The Web site offers bidding facility to
people who want to buy tickets immediately. On the Web site, William quotes the highest
price and gets the ticket.

5) Government Based Model

In addition to the models discussed so far, five new models are being worked on that
involves transactions between the government and other entities, such as consumer,
business organizations, and other governments. All these transactions that involve
government as one entity are called e-governance. The various models in the e-
governance scenario are:

• Government-to-Government (G2G) model: This model involves transactions

between 2 governments, either the internal governments or external
governments. For example, if the Nepali government wants to by oil from the
Indian government, the transaction involved are categorized in the G2G model. Or,
the local government of Kathmandu communicates with central government.

• Government-to-Consumer (G2C) model: In this model, the government transacts

with an individual consumer. For example, a government can enforce laws
pertaining to tax payments on individual consumers over the Internet by using the
G2C model.
 • Consumer-to-Government (C2G) model: In this model, an individual consumer
interacts with the government. For example, a consumer can pay his income tax or
house tax online. The transactions involved in this case are C2G transactions.
• Government-to-Business (G2B) model: This model involves transactions between
a government and business organizations. For example, the government plans to
build a fly over. For this, the government requests for tenders from various
contractors. Government can do this over the Internet by using the G2B model.
• Business-to-Government (B2G) model: In this model, the business houses transact
with the government over the Internet. For example, similar to an individual
consumer, business houses can also pay their taxes on the Internet.
E-Business models based on the relationship of Transaction Types
Based on transaction type, different types of transactions can be identified as listed below:
1. Brokerage
2. Aggregator
3. Info-mediary
4. Community
5. Value chain
6. Advertising
These transaction types take place in a variety of ways. Moreover, any given firm may combine
one or two of these as part of its web business strategy.
1) Brokerage Model
Brokers are market-makers: they bring buyers and sellers together and facilitate
transactions. Brokers play a frequent role in business-to-business (B2B), business-to-
consumer (B2C), or consumer-to-consumer (C2C) markets. Usually a broker charges a fee
or commission for each transaction it enables. The formula for fees can vary depending on
context. Brokerage models include:

• Marketplace Exchange -- offers a full range of services covering the transaction

process, from market assessment to negotiation and fulfillment. Some examples
are [Orbitz, ChemConnect]
• Buy/Sell Fulfillment -- takes customer orders to buy or sell a product or service,
including terms like price and delivery. Some examples are [CarsDirect,
Respond.com]
• Auction Broker -- conducts auctions for sellers (individuals or merchants). Broker
charges the seller a listing fee and commission scaled with the value of the
transaction. Auctions vary widely in terms of the offering and bidding rules. Some
examples are [eBay]
 • Transaction Broker -- provides a third-party payment mechanism for buyers and
sellers to settle a transaction. Some examples are [PayPal, Escrow.com]
• Search Agent -- a software agent or "robot" used to search-out the price and
availability for a good or service specified by the buyer, or to locate hard to find
information.
• Virtual Marketplace -- or virtual mall, a hosting service for online merchants that
charges setup, monthly listing, and/or transaction fees. It may also provide
automated transaction and relationship marketing services. Some examples are
[zShops and Merchant Services at Amazon.com]

2) Aggregator Model
Electronic commerce business model where a firm (that does not produce or warehouses
any item) collects (aggregates) information on goods and/or services from several
competing sources at its website. The firm's strength lies in its ability to create an
'environment' which draws visitors to its website, and in designing a system which allows
easy matching of prices and specifications. Aggregator model includes:

• Virtual Merchant -- this is a business that operate only from the web and offers
either traditional or web specific goods and services. The method of selling may be
listing price or auction. Some examples include [Amazon, eToys]
• Catalog Merchant – Catalog business is a migration of mail order to web-based
order business.
• Bit Vendor – This is the merchant that deals strictly in digital products and services
in its purest form.

• Subscription model – the users have to pay for the access of the site. High value
added content should be essential for subscription model. Some examples are
[Wall street journal, Consumer Reports]

3) Info-mediary Model
Data about consumers and their consumption habits are valuable, especially when that
information is carefully analyzed and used to target marketing campaigns. Independently
collected data about producers and their products are useful to consumers when
considering a purchase. Some firms function as infomediaries (information intermediaries)
assisting buyers and/or sellers understand a given market. Info-mediary model includes:

• Advertising Networks -- feed banner ads to a network of member sites, thereby

enabling advertisers to deploy large marketing campaigns. Ad networks collect
data about web users that can be used to analyze marketing effectiveness.
[DoubleClick]
 • Audience Measurement Services -- online audience market research agencies.
[Nielsen//Netratings]
• Incentive Marketing -- customer loyalty program that provides incentives to
customers such as redeemable points or coupons for making purchases from
associated retailers. Data collected about users is sold for targeted advertising.
[Coolsavings]
• Metamediary -- facilitates transactions between buyer and sellers by providing
comprehensive nformation and ancillary services, without being involved in the
actual exchange of goods or services between the parties. [Edmunds]
4) Community Model
The viability of the community model is based on user loyalty. Users have a high
investment in both time and emotion. Revenue can be based on the sale of ancillary
products and services or voluntary contributions; or revenue may be tied to contextual
advertising and subscriptions for premium services. The Internet is inherently suited to
community business models and today this is one of the more fertile areas of
development, as seen in rise of social networking.

• Open Source -- software developed collaboratively by a global community of

programmers who share code openly. Some examples are [Red Hat, Linux]
• Open Content -- openly accessible content developed collaboratively by a global
community of contributors who work voluntarily. [Wikipedia]
• Public Broadcasting -- user-supported model used by not-for-profit radio and
television broadcasting extended to the web. A community of users support the
site through voluntary donations. [The Classical Station (WCPE.org)]
• Social Networking Services -- sites that provide individuals with the ability to
connect to other individuals along a defined common interest (professional, hobby,
romance). Social networking services can provide opportunities for contextual
advertising and subscriptions for premium services. [Facebook, Orkut]

4) Value Chain Model

Value chain selling is supported through two business models: demand chain and a supply
chain; E-Commerce supports the transactions through both the demand chain business
model and supply chain business model.

Products, goods, services, or information are delivered through the parties of the value
chain from producers to end users. A value chain also has relationship and administrative
aspects, that is, you can manage the relationship of the partners or enterprises in your
value chain, as well as offer some administrative services to those parties.
As a result, value chain business models must manage the two sides of their businesses:
their customers and direct sales, and their channel partners and suppliers. Each requires
its own management channels and practices.

To sell directly to customers (direct sales), value chain models usually include a storefront,
where customers can purchase their goods or services directly. To manage relationships
with partners or suppliers, the demand chain and a supply chain models within the value
chain include a hub.

6) Advertising Model
The web advertising model is an extension of the traditional media broadcast model. The
broadcaster, in this case, a web site, provides content (usually, but not necessarily, for free)
and services (like email, IM, blogs) mixed with advertising messages in the form of banner
ads. The banner ads may be the major or sole source of revenue for the broadcaster. The
advertising model works best when the volume of viewer traffic is large or highly
specialized. Advertising model includes:

• Portal -- usually a search engine that may include varied content or services. A high
volume of user traffic makes advertising profitable and permits further
diversification of site services. Some common examples are [Google, Yahoo!]
• Classifieds -- list items for sale or wanted for purchase. Listing fees are common,
but there also may be a membership fee. [Monster.com, Craigslist]
• User Registration -- content-based sites that are free to access but require users to
register and provide demographic data. Registration allows inter-session tracking of
user surfing habits and thereby generates data of potential value in targeted
advertising campaigns. [NYTimes]
• Contextual Advertising / Behavioral Marketing -- For example, a browser
extension that automates authentication and form fill-ins, also delivers advertising
links or pop-ups as the user surfs the web. Contextual advertisers can sell targeted
advertising based on an individual user's surfing activity.