INDUSTRY OVERVIEW

INTRODUCTION
E-commerce (electronic commerce or EC) is the buying and selling of goods and
services on the Internet, especially the World Wide Web. In practice, this term and a
newer term, e-business, are often used interchangably. For online retail selling, the
term e-tailing is sometimes used

Electronic commerce is generally considered to be the sales aspect of e-business. It

also consists of the exchange of data to facilitate the financing and payment aspects of
business transactions.

E-commerce can be divided into

E-tailing or "virtual storefronts" on Web sites with online catalogs, sometimes

gathered into a "virtual mall"
The gathering and use of demographic data through Web contacts
Electronic Data Interchange (EDI), the business-to-business exchange of data
E-mail and fax and their use as media for reaching prospects and established
customers (for example, with newsletters)
Business-to-business buying and selling
The security of business transactions

Today Ecommerce is an integral part of business because of various reasons like:

Ease of use & Accessibility all across the globe

Great variety & easy compassion of products from different vendors

Trusted payment channels

Shopping can be done sitting in the convenience of home shopping, hence it is

less time consuming. It is therefore very important for any new entrepreneur to
understand the significance of E-Commerce and should know how to utilize this tool
for the growth and development of business.
So, whether you have an existing business or launching a brand new business,
whether the volume of your business is large or small, you can always generate profit
by demonstrating your products or services online, thereby acquiring a large amount
of viewer exposure. In concise, buying and selling will result in profits and returns.

There are so many factors which makes e-commerce to come to the fore front in
today's world. Saving precious time involved in business transactions is really a
prominent factor. Like for instance, net banking makes it easy to carry out money and
baking transactions in a break neck speed as compared to the real banking scenario.
This asserts the fact that Ecommerce is beneficial to both business and consumer wise
as payment and documentations can be completed with greater efficiency and
reliability. Another important factor determining the flow of whole business is
connectivity. Connectivity is very important for both consumers and business.
Ecommerce provides better connectivity for all the potential candidates all over the
globe, thus helping in enhancing the business without any geographical barriers. From
the view point of the customer, Ecommerce is a good platform for hassle free
shopping by sitting in your home. The customer can browse through all the products
and services available and can review and compare the prices of the similar products
available in the online space.

In global market scenario, the emergence of Ecommerce as a forerunner has opened

up various windows of opportunities for a variety of online companies and investors.
More and more resources are being directed into electronic securities, internet
facilities, business plans and new technologies due to the boom in the space of E-
commerce. As a result various new markets have emerged from Ecommerce itself
giving a boost to the global market.

History of E-commerce

One of the most popular activities on the Web is shopping. It has much allure in it you
can shop at your leisure, anytime, and in your pajamas. Literally anyone can have
their pages built to display their specific goods and services.
History of ecommerce dates back to the invention of the very old notion of "sell and
buy", electricity, cables, computers, modems, and the Internet. Ecommerce became
possible in 1991 when the Internet was opened to commercial use. Since that date
thousands of businesses have taken up residence at web sites.
At first, the term ecommerce meant the process of execution of commercial
transactions electronically with the help of the leading technologies such as Electronic
Data Interchange (EDI) and Electronic Funds Transfer (EFT) which gave an
opportunity for users to exchange business information and do electronic transactions.
The ability to use these technologies appeared in the late 1970s and allowed business
companies and organizations to send commercial documentation electronically.
Although the Internet began to advance in popularity among the general public in
1994, it took approximately four years to develop the security protocols (for example,
HTTP) and DSL which allowed rapid access and a persistent connection to the
Internet. In 2000 a great number of business companies in the United States and
Western Europe represented their services in the World Wide Web. At this time the
meaning of the word ecommerce was changed. People began to define the term
ecommerce as the process of purchasing of available goods and services over the
Internet using secure connections and electronic payment services. Although the dot-
com collapse in 2000 led to unfortunate results and many of ecommerce companies
disappeared, the "brick and mortar" retailers recognized the advantages of electronic
commerce and began to add such capabilities to their web sites (e.g., after the online
grocery store Webvan came to ruin, two supermarket chains, Albertsons and Safeway,
began to use ecommerce to enable their customers to buy groceries online). By the
end of 2001, the largest form of ecommerce, Business-to-Business (B2B) model, had
around $700 billion in transactions

Features of E-Commerce

Features E-Commerce provides the following features:

Non-Cash Payment: E-Commerce enables the use of credit cards, debit cards, smart
cards, electronic fund transfer via bank's website, and other modes of electronics
payment.
24x7 Service availability: E-commerce automates the business of enterprises and the
way they provide services to their customers. It is available anytime, anywhere.

Advertising/Marketing: E-commerce increases the reach of advertising of products

and services of businesses. It helps in better marketing management of
products/services.

Improved Sales: Using e-commerce, orders for the products can be generated
anytime, anywhere without any human intervention. It gives a big boost to existing
sales volumes.

Support: E-commerce provides various ways to provide pre-sales and post-sales

assistance to provide better services to customers.

Inventory Management: E-commerce automates inventory management. Reports get

generated instantly when required. Product inventory management becomes very
efficient and easy to maintain.

Communication improvement: E-commerce provides ways for faster, efficient,

reliable communication with customers and partners

Historical Development of E- commerce

Traditional commerce Vs E-commerce

Traditional Commerce v/s E-Commerce

Traditional Commerce E-Commerce

1. Heavy dependency on information Information sharing is made easy via

exchange from person to person. electronic communication channels
making a little dependency on person to
person information exchange.

2. Communication/transactions are Communication or transactions can be

done in synchronous way. Manual done in asynchronous way. The whole
intervention is required for each process is completely automated.
communication or transaction.
 3. It is difficult to establish and A uniform strategy can be easily
maintain standard practices in established and maintained in e-
traditional commerce. commerce.

4. Communications of business In e-commerce, there is no human

depends upon individual skills. intervention.

5. Unavailability of a uniform E-commerce websites provide the user

platform, as traditional commerce a platform where all the information is
depends heavily on personal available at one place.
communication.

6. No uniform platform for E-commerce provides a universal

information sharing, as it depends platform to support
heavily on personal commercial/business activities across
communication. the globe.

Models of E-commerce

E-commerce business models can generally be categorized into the following

categories.

Business - to - Business (B2B)

Business - to - Consumer (B2C)

Consumer - to - Consumer (C2C)

Consumer - to - Business (C2B)

Business - to - Government (B2G)

Government - to - Business (G2B)

 Government - to - Citizen (G2C)

Business -to -Business

A website following the B2B business model sells its products to an intermediate
buyer who then sells the product to the final customer. As an example, a wholesaler
places an order from a company's website and after receiving the consignment, sells
the end-product to the final customer who comes to buy the product at one of its retail
outlets.

Business -to -Consumer

A website following the B2C business model sells its products directly to a customer.
A customer can view the products shown on the website. The customer can choose a
product and order the same. The website will then send a notification to the business
organization via email and the organization will dispatch the product/goods to the
customer.
Consumer -to -Consumer

A website following the C2C business model helps consumers to sell their assets like
residential property, cars, motorcycles, etc., or rent a room by publishing their
information on the website. Website may or may not charge the consumer for its
services. Another consumer may opt to buy the product of the first customer by
viewing the post/advertisement on the website.
Consumer -to -Business

In this model, a consumer approaches a website showing multiple business

organizations for a particular service. The consumer places an estimate of amount
he/she wants to spend for a particular service. For example, the comparison of interest
rates of personal loan/car loan provided by various banks via websites. A business
organization who fulfills the consumer's requirement within the specified budget,
approaches the customer and provides its services.

Business -to -Government

B2G model is a variant of B2B model. Such websites are used by governments to
trade and exchange information with various business organizations. Such websites
are accredited by the government and provide a medium to businesses to submit
application forms to the government.

Government -to -Business

Governments use B2G model websites to approach business organizations. Such

websites support auctions, tenders, and application submission functionalities.
Governments use G2C model websites to approach citizen in general. Such
Government -to -Citizen

websites support auctions of vehicles, machinery, or any other material. Such website
also provides services like registration for birth, marriage or death certificates. The
main objective of G2C websites is to reduce the average time for fulfilling citizens
requests for various government services.

Common Technological Difference between B2B & B&C

B2B Model

A website following the B2B business model sells its products to an intermediate
buyer who then sells the products to the final customer. As an example, a wholesaler
places an order from a company's website and after receiving the consignment, it sells
the end-product to the final customer who comes to buy the product at the
wholesaler's retail outlet.
B2B identifies both the seller as well as the buyer as business entities. B2B covers a
large number of applications, which enables business to form relationships with their
distributors, re-sellers, suppliers, etc. Following are the leading items in B2B e-
Commerce.

Electronics

Shipping and Warehousing

Motor Vehicles

Petrochemicals

Paper

Office products

Food

Agriculture

Key Technologies
Following are the key technologies used in B2B e-commerce:
 Electronic Data Interchange (EDI) - EDI is an inter-organizational exchange
of business documents in a structured and machine processable format.

Internet - Internet represents the World Wide Web or the network of networks
connecting computers across the world.

Intranet - Intranet represents a dedicated network of computers within a

single organization.

Extranet - Extranet represents a network where the outside business partners,

suppliers, or customers can have a limited access to a portion of enterprise
intranet/network.

Back-End Information System Integration Back-end information systems

are database management systems used to manage the business data.

Architectural Models
Following are the architectural models in B2B e-commerce:

Supplier-oriented Marketplace - In this type of model, a common

marketplace provided by a supplier is used by both the individual customers as
well as the business users. A supplier offers an e-store for sales promotion.

Buyer-oriented marketplace - In this type of model, the buyer has his/her

own market place or e-market. He/she invites suppliers to bid on the product's
catalog. A buyer company opens a bidding site.

Intermediary-oriented marketplace - In this type of model, an intermediary

company runs a marketplace where business buyers and sellers can transact
with each other.
B2C Model

In B2C model, a business website is a place where all the transactions take place
directly between a business organization and a consumer.

In the B2C model, a consumer goes to the website, selects a catalog, orders the
catalog, and an email is sent to the business organization. After receiving the order,
goods are dispatched to the customer. Following are the key features of the B2C
model:

Heavy advertising required to attract customers.

High investments in terms of hardware/software.

Support or good customer care service.

Consumer Shopping Procedure

Following are the steps used in B2C e-commerce:

A consumer -

1. determines the requirement,

2. searches available items on the website meeting the requirements,

3. compares similar items for price, delivery date or any other terms,

4. places the order,

5. pays the bill,

6. receives the delivered item and reviews/inspects them,

7. consults the vendor to get after-service support or returns the product if not
satisfied with the delivered product.

Disintermediation and Re-intermediation

In traditional commerce, there are intermediating agents like wholesalers, distributors,
and retailers between the manufacturer and the consumer. In B2C websites, a
manufacturer can sell its products directly to potential consumers. This process of
removal of business layers responsible for intermediary functions is called
disintermediation.
Nowadays, new electronic intermediary breeds such as e-mall and product selection
agents are emerging. This process of shifting of business layers responsible for
intermediary functions from traditional to electronic mediums is called re-
intermediation.

E-commerce Process

A consumer uses Web browser to connect to the home page of a merchant's Web
site on the Internet.

The consumer browses the catalog of products featured on the site and selects
items to purchase. The selected items are placed in the electronic equivalent of a
shopping cart.

When the consumer is ready to complete the purchase of selected items, she
provides a bill-to and ship-to address for purchase and delivery.
 When the credit card number is validated and the order is completed at the
Commerce Server site, the merchant's site displays a receipt confirming the
customer's purchase.

The Commerce Server site then forwards the order to a Processing Network for
payment processing and fulfilment.

E-commerce process Cycle

Advantages of E-commerce

The advantages of e-commerce can be broadly classified into three major categories:

Advantages to Organizations

Advantages to Consumers

Advantages to Society
Advantages to Organizations

Using e-commerce, organizations can expand their market to national and

international markets with minimum capital investment. An organization can
easily locate more customers, best suppliers, and suitable business partners across
the globe.

E-commerce helps organizations to reduce the cost to create process, distribute,

retrieve and manage the paper based information by digitizing the information.

E-commerce improves the brand image of the company.

E-commerce helps organizations to provide better customer service.

E-commerce helps to simplify the business processes and makes them faster and
efficient.

E-commerce reduces the paper work.

E-commerce increases the productivity of organizations. It supports "pull" type

supply management. In "pull" type supply management, a business process starts
when a request comes from a customer and it uses just-in-time manufacturing
way.

Advantages to customers

It provides 24x7 support. Customers can enquire about a product or service and
place orders anytime, anywhere from any location.
 E-commerce application provides users with more options and quicker delivery
of products.

E-commerce application provides users with more options to compare and select
the cheaper and better options.

A customer can put review comments about a product and can see what others are
buying, or see the review comments of other customers before making a final
purchase.

E-commerce provides options of virtual auctions.

It provides readily available information. A customer can see the relevant detailed
information within seconds, rather than waiting for days or weeks.

E-Commerce increases the competition among organizations and as a result,

organizations provides substantial discounts to customers.

Advantages to Society

Customers need not travel to shop a product, thus less traffic on road and low air
pollution.

E-commerce helps in reducing the cost of products, so less affluent people can
also afford the products.

E-commerce has enabled rural areas to access services and products, which are
otherwise not available to them.

E-commerce helps the government to deliver public services such as healthcare,

education, social services at a reduced cost and in an improved manner.
Disadvantages of E-commerce

The disadvantages of e-commerce can be broadly classified into two major

categories:

Technical disadvantages

Non-technical disadvantages

Technical Disadvantages

There can be lack of system security, reliability or standards owing to poor

implementation of e-commerce.

The software development industry is still evolving and keeps changing rapidly.

In many countries, network bandwidth might cause an issue.

Special types of web servers or other software might be required by the vendor,
setting the e-commerce environment apart from network servers.

Sometimes, it becomes difficult to integrate an e-commerce software or website

with existing applications or databases.

There could be software/hardware compatibility issues, as some e-commerce

software may be incompatible with some operating system or any other
component.

Non-Technical Disadvantages
 Initial cost: The cost of creating/building an e-commerce application in-house
may be very high. There could be delays in launching an e-Commerce application
due to mistakes, and lack of experience.

User resistance: Users may not trust the site being an unknown faceless seller.
Such mistrust makes it difficult to convince traditional users to switch from
physical stores to online/virtual stores.

Security/ Privacy: It is difficult to ensure the security or privacy on online

transactions.

Lack of touch or feel of products during online shopping is a drawback.

E-commerce applications are still evolving and changing rapidly.

Internet access is still not cheaper and is inconvenient to use for many potential
customers, for example, those living in remote villages.

KEY REASONS FOR THE SUCCESS OF E-COMMERCE

Shopping 24x7: E-commerce facilitates shopping anytime, anywhere and for
almost anything desired. Busy consumers prefer this to the restrictions of
when a mall/shop is open and the need to physically travel to a shop. Online
business takes shopping a step further by taking itself to the customer creating
conveniences of shopping anywhere and at anytime.

Reduced operational cost: Since the entire business can be moved online, the
need for physical stores has become obsolete. Less infrastructural investment
and associated labour costs drives up the profit margin. The seller can then
transfer this benefit to the customer in the form of discounted pricing which
boosts the appeal of online shopping.
 Easy to compare: It is far easier and quicker to compare prices of goods
online, equipping the customer with the information to decide the right price
or terms for themselves. The comparison is not restricted to items from a
single seller, or a single region. One can explore products across global
markets via e commerce.

Safe & secure:Customers can trust the process of going online and purchasing
only when transactions are fast, convenient and secure. A high degree of
integrity is possible only when the online electronic payment provider is
reputable and trustworthy. In India, all payment transaction providers are
required to comply with the security requirements laid out by the Reserve
Bank of India making the system more robust and reliable.

Increased reach for the merchant: Just as the customer finds them able to
venture across geographic markets, the merchant too is able to display his
product to customers in new territories. Market penetration also becomes far
more achievable with e-commerce; it is possible for a merchant in Mumbai to
extend his reach to north-eastern cities or even rural villages that are now
connected by the online network.

Social media trend: In India, with the increasing propensity of social media,
businesses have now begun to engage their customers on social networking
portals such as Facebook. Promotions, sales and new products are increasingly
showcased through such channels and mobile apps are now available that
suggest products to users based on their profiles. These are likely to be rapidly
developing marketing channels for the future.

The e-commerce world is changing rapidly in the digitized world. These e-commerce
developments may have been accelerated by the global economic downturn which
may be driving consumers to find new ways of reducing their costs of living. The
online channel offers a clear value proposition for both merchants and consumers
making it the most sought after and exciting business model today
Success factors in E-commerce

Product suitability

Product Acceptance

E-commerce Technologies

E-commerce Standards

E-commerce Payment process

E-commerce sites use electronic payment, where electronic payment refers to

paperless monetary transactions. Electronic payment has revolutionized the business
processing by reducing the paperwork, transaction costs, and labor cost. Being user
friendly and less time-consuming than manual processing, it helps business
organization to expand its market reach/expansion. Listed below are some of the
modes of electronic payments:

1. Credit Card

2. Debit Card

3. Smart Card

4. E-Money

5. Electronic Fund Transfer (EFT)

Credit Card
Payment using credit card is one of most common mode of electronic payment.
Credit card is a small plastic card with a unique number attached with an account. It
has a magnetic strip embedded in it that is used to read the credit card via card
readers. When a customer purchases a product via credit card, the credit card issuer
bank pays on behalf of the customer and the customer has a certain time period after
which he/she can pay the credit card bill. It is usually in the credit card monthly
payment cycle. Following are the actors in the credit card system.

The card holder - Customer,

 The merchant - seller of product who can accept credit card payments,

The card issuer bank - card holder's bank,

The acquirer bank - the merchant's bank,

The card brand - for example, Visa or MasterCard.

Credit Card Payment Process

Step Description

Step 1 Bank issues and activates a credit card to the customer on

his/her request.
Step 2 The customer presents the credit card information to the
merchant site or to the merchant from whom he/she wants to
purchase a product/service.
Step 3 Merchant validates the customer's identity by asking for
approval from the card brand company.
Step 4 Card brand company authenticates the credit card and pays
the transaction by credit. Merchant keeps the sales slip.
Step 5 Merchant submits the sales slip to acquirer banks and gets the
service charges paid to him/her.
Step 6 Acquirer bank requests the card brand company to clear the
credit amount and gets the payment.
Step 7 Now the card brand company asks to clear the amount from
the issuer bank and the amount gets transferred to the card
brand company.

Debit Card
Debit card, like credit card, is a small plastic card with a unique number mapped with
the bank account number. It is required to have a bank account before getting a debit
card from the bank. The major difference between a debit card and a credit card is
that in case of payment through debit card, the amount gets deducted from the card's
bank account immediately and there should be sufficient balance in the bank account
for the transaction to get completed; whereas in case of a credit card transaction, there
is no such compulsion.
Debit cards free the customer to carry cash and cheques. Even merchants accept a
debit card readily. Having a restriction on the amount that can be withdrawn in a day
using a debit card helps the customer to keep a check on his/her spending.

Smart Card
Smart card is again similar to a credit card or a debit card in appearance, but it has a
small microprocessor chip embedded in it. It has the capacity to store a customers
work-related and/or personal information. Smart cards are also used to store money
and the amount gets deducted after every transaction.
Smart cards can only be accessed using a PIN that every customer is assigned with.
Smart cards are secure, as they store information in encrypted format and are less
expensive/provides faster processing. Mondex and Visa Cash cards are examples of
smart cards.

E-Money
E-Money transactions refer to situation where payment is done over the network and
the amount gets transferred from one financial body to another financial body without
any involvement of a middleman. E-money transactions are faster, convenient, and
saves a lot of time.

Online payments done via credit cards, debit cards, or smart cards are examples of e-
money transactions. Another popular example is e-cash. In case of e-cash, both
customer and merchant have to sign up with the bank or company issuing e-cash.

Electronic Fund Transfer

It is a very popular electronic payment method to transfer money from one bank
account to another bank account. Accounts can be in the same bank or different banks.
Fund transfer can be done using ATM (Automated Teller Machine) or using a
computer.

Nowadays, internet-based EFT is getting popular. In this case, a customer uses the
website provided by the bank, logs in to the bank's website and registers another bank
account. He/she then places a request to transfer certain amount to that account.
Customer's bank transfers the amount to other account if it is in the same bank,
otherwise the transfer request is forwarded to an ACH (Automated Clearing House) to
transfer the amount to other account and the amount is deducted from the customer's
account. Once the amount is transferred to other account, the customer is notified of
the fund transfer by the bank.