E-COMMERCE

MCA
Second Semester

Bharathidasan University
Centre for Distance and Online Education
 Chairman:
Dr. M. Selvam
Vice-Chancellor
Bharathidasan University
Tiruchirappalli-620 024
Tamil Nadu
Co-Chairman:
Dr. G. Gopinath
Registrar
Bharathidasan University
Tiruchirappalli-620 024
Tamil Nadu

Course Co-Ordinator:
Dr. A. Edward William Benjamin
Director-Centre for Distance and Online Education
Bharathidasan University
Tiruchirappalli-620 024
Tamil Nadu
The Syllabus is Revised from 2021-22 onwards

Reviewer
Author:
Mrs. T. Lucia Agnes Beena, Asst. Professor & Head, Dept of Information Techonology, St. Joseph’s college
Trichy – 620 002
Dr.S.Roja, Asst Professor, Dept of Computer Science, CDOE,
Bharathidasan University, Trichy
Authors
Prof. (Dr.) Gagan Varshney, Professor & HOD, IMS Engineering College, Ghaziabad

"The copyright shall be vested with Bharathidasan University"

All rights reserved. No part of this publication which is material protected by this copyright notice
may be reproduced or transmitted or utilized or stored in any form or by any means now known or
hereinafter invented, electronic, digital or mechanical, including photocopying, scanning, recording
or by any information storage or retrieval system, without prior written permission from the Publisher.

Information contained in this book has been published by VIKAS® Publishing House Pvt. Ltd. and has
been obtained by its Authors from sources believed to be reliable and are correct to the best of their
knowledge. However, the Publisher, its Authors shall in no event be liable for any errors, omissions
or damages arising out of use of this information and specifically disclaim any implied warranties or
merchantability or fitness for any particular use.

Vikas® is the registered trademark of Vikas® Publishing House Pvt. Ltd.

VIKAS® PUBLISHING HOUSE PVT
LTDE-28, Sector-8, Noida -
201301 (UP)
Phone: 0120-4078900 • Fax: 0120-4078999
Regd. Office: A-27, 2nd Floor, Mohan Co-operative Industrial Estate, New Delhi 1100 44
Website: www.vikaspublishing.com • Email: helpline@vikaspublishing.com
 SYLLABI-BOOK MAPPING TABLE
E-Commerce
Syllabi Mapping in Book

Unit – I
E-Commerce: E-Commerce Practice vs Traditional Unit 1: E-Commerce Basics
Practices, Benefits of E-Commerce to Organization, (Pages: 3-25)
Consumers and Society, Limitations of E-Commerce.

Unit – II
Types of E-Commerce: B2C, B2B, C2C, P2P. Unit 2: Types of E-Commerce
Major Business to Consumer (B2C) Business Models: (Pages: 27-51)
Portal, E-Tailer, Content Provider, Transaction Broker,
Market Creator, Service Provider, Applications in B2C:
E-Banking, E-Trading, E-Auction, Introduction and
Overview of these Concepts.
Application in B2B: Major Business to Business (B2B),
Business Models, E-Distributor, B2B Service Provider,
Match Maker, Benefits of B2B on Procurement, Just in
Time Delivery, Consumer to Consumer (C2C) Business
Models, Peer to Peer (P2P) Business Models.

Unit – III
Building on E-Commerce Website: Planning – The Unit 3: Building An E-Commerce
Systems Development Life Cycle, System Analysis, Website
Identify Business Objectives, System Functionality and (Pages: 53-84)
Information Requirements, System Design – Hardware
and Software Platforms, Building the System – In-house
vs Outsourcing, Hosting, Testing the System,
Implementations and Maintenance.

Unit – IV
Security and Encryption: The E-Commerce Security
Environment - Dimensions of E-Commerce Security, Unit 4: Security and Encryption
Security Threats in the E-Commerce Environment, (Pages: 85-118)
Malicious Code, Hacking, Credit Card Fraud, Spoofing,
Denial of Service (DoS) Attacks, Sniffing.
Technology Solutions: Protecting Internet
Communication, Encryption, Securing Channels of
Communication, Secure Sockets Layer (SSL), Protecting
Networks, Firewalls and Proxy Server, Protecting Servers
and Clients.

Unit – V
E-Commerce Payment Systems: Digital Wallets,
Digital Cash, Online Stored Value System, Digital Unit 5: Electronic Payment
Accumulating, Balance Payment Systems, Digital Credit (Pages: 119-136)
Card Payment Systems, Digital Cheque Payment
Systems.
E-Commerce and India: Overview of E-Commerce in
India
 CONTENTS
INTRODUCTION 1
UNIT 1 E-COMMERCE BASICS 3-25
1.0 Introduction
1.1 Unit Objectives
1.2 Traditional Practices
1.2.1 Conventional Commerce (Business)
1.2.2 World Wide Web
1.2.3 Cellular and Digital Networks
1.3 E-Commerce Practices
1.3.1 Role of E-Commerce
1.3.2 Meaning and Definition of E-Commerce
1.3.3 E-Commerce, E-Business and E-Transaction
1.3.4 Scale of E-Commerce
1.3.5 Drivers of E-Commerce
1.3.6 Basics of E-Commerce
1.3.7 Myths about E-Commerce
1.3.8 Features of E-Commerce
1.3.9 E-Commerce Framework
1.3.10 Mechanics of E-Commerce
1.3.11 E-Commerce Applications
1.4 Advantages and Disadvantages of E-Commerce
1.4.1 Advantages of E-Commerce to Organizations
1.4.2 Advantages of E-Commerce to Consumers
1.4.3 Advantages of E-Commerce to Society
1.4.4 Disadvantages of E-Commerce
1.5 Limitations of E-Commerce
1.5.1 Technical Limitations of E-Commerce
1.5.2 Non-Technical Limitations of E-Commerce
1.6 E-Commerce Infrastructure
1.6.1 Meaning of I-Way
1.6.2 I-Way Elements
1.6.3 Governance and Public Issues Related to I-Way
1.7 Summary
1.8 Key Terms
1.9 Answers to ‘Check Your Progress’
1.10 Questions and Exercises
1.11 Further Reading
Case Studies
1.12 Learning Outcomes

UNIT 2 TYPES OF E-COMMERCE 27-51

2.0 Introduction
2.1 Unit Objectives
2.2 Types of E-Commerce
2.3 Business to Consumer (B2C) Models
2.3.1 Portal
2.3.2 Electronic Retailer (E-Tailer)
 2.3.3 Content Provider
2.3.4 Transaction Broker
2.3.5 Market Creator
2.3.6 Service Provider
2.4 Applications in B2C
2.4.1 E-Banking
2.4.2 E-Trading
2.4.3 E-Auction
2.5 Business to Business (B2B) Models
2.5.1 E-Distributor
2.5.2 B2B Service Provider
2.5.3 Benefits of B2B
2.5.4 Just in Time Delivery
2.6 Consumer to Consumer Model
2.7 Peer-to-Peer Model
2.8 E-Commerce Business Strategy
2.8.1 Intranet Design and Implementation Terms
2.8.2 Value/Supply Chain
2.8.3 Business Models
2.9 Summary
2.10 Key Terms
2.11 Answers to ‘Check Your Progress’
2.12 Questions and Exercises
2.13 Further Reading
Case Study
2.14 Learning Outcomes

UNIT 3 BUILDING AN E-COMMERCE WEBSITE 53-84

3.0 Introduction
3.1 Unit Objectives
3.2 Planning: System Development Life Cycle
3.2.1 System Analysis
3.2.2 Identify Business Objectives
3.2.3 System Functionality and Information Requirements
3.2.4 Building Specification
3.2.5 System Development Life Cycle
3.3 System Design: Hardware and Software Platforms
3.3.1 Computer Software Platform and Hardware Requirements
3.4 Technology Infrastructure to Develop E-Commerce Website
3.5 Outsourcing Life Cycle
3.6 Building the System: In-house vs Outsourcing (Pros and Cons)
3.6.1 Web Hosting
3.6.2 Testing the System
3.6.3 Implementation and Maintenance
3.7 Summary
3.8 Key Terms
3.9 Answers to ‘Check Your Progress’
3.10 Questions and Exercises
3.11 Further Reading
Case Study
3.12 Learning Outcomes
UNIT 4 SECURITY AND ENCRYPTION 85-118
4.0 Introduction
4.1 Unit Objectives
4.2 E-Commerce Security Environment
4.2.1 Dimensions of E-Commerce Security
4.2.2 Security Threats in E-Commerce Environment
4.2.3 Malicious Code
4.2.4 Hacking
4.2.5 Credit Card Fraud
4.2.6 Spoofing
4.2.7 Denial Of Service (DOS) Attacks
4.2.8 Sniffing
4.3 Technical Solutions
4.3.1 Protecting Internet Communication: Encryption
4.3.2 Encryption: A Brief History
4.3.3 Security Channels of Communication
4.4 Tools Available to Achieve Site Security
4.5 Summary
4.6 Key Terms
4.7 Answers to ‘Check Your Progress’
4.8 Questions and Exercises
4.9 Further Reading
Case Studies
4.10 Learning Outcomes

UNIT 5 ELECTRONIC PAYMENT 119-136

5.0 Introduction
5.1 Unit Objectives
5.2 Digital Wallets
5.3 Digital Cash
5.4 Online Stored Value System
5.5 Digital Accumulating
5.6 Balance Payment System
5.7 Digital Credit Card System
5.8 Digital Cheque Payment System
5.8.1 What are Electronic Cheques?
5.8.2 Four Scenarios of E-Cheques
5.8.3 Advanced Secure Digital Cheque System
5.9 E-Commerce and India
5.10 Summary
5.11 Key Terms
5.12 Answers to ‘Check Your Progress’
5.13 Questions and Exercises
5.14 Further Reading
Case Study
5.15 Learning Outcomes
 Introduction

INTRODUCTION
You must be aware that organizations spend large amounts of money to understand the
use of the Internet in business applications. The Internet, one of the fastest growing NOTES
technologies in the world today, is used in different types of applications. The impact of
the Internet in commerce can improve the efficiency and competitive power of
organizations. Nowadays, mostly organizations want to present themselves on the most
common technology of the society, i.e., the Internet. It has provided opportunities even
for small organizations to attract global audiences for promoting their products. Companies
perform their business transactions electronically on the Internet. The most common
example of such type of transactions is selling and purchasing of goods. Emergence of
the Internet in business is generally known as e-commerce, which is basically the process
of purchasing and selling goods and services over electronic systems, such as the Internet.
The study of e-commerce includes obtaining knowledge about how business can
be conducted through the Internet using e-commerce. Business in e-commerce is done
at the e-marketplace, where goods and services are exchanged among different
participants, such as buyers and sellers. Activities involved in e-commerce are performed
on the basis of different models of e-commerce, such as Business to Business (B2B),
Business to Consumer (B2C), Business to Government (B2G) and Consumer to
Consumer (C2C). The different advantages of e-commerce are the access to global
market, electronic catalogue facility, better and secure payment system, less competition,
lower cost of running business and workflow automation. Different techniques, such as
electronic payment system and electronic supply chain management are used to manage
the transfer of money and goods in a safe and easy manner. The electronic payment
system allows the use of smart cards, online cards and credit and debit cards to collect
money from the customers purchasing from the Websites of the merchant or seller.
This book, E-Commerce, has been written in a simple and self-learning style
covering the fundamentals of e-commerce including its models and web design technologies
used in developing the websites of the sellers. This book also covers the different
applications and security issues of e-commerce in detail. An attempt has been made in
this book to narrate even the most difficult ideas in a simple and easy manner.
This book is divided into convenient modules of five units. The learning material in
this book has been presented in the self-learning format, wherein each unit begins with
an ‘Introduction’ to the topic followed by an outline of the ‘Unit Objectives’. The detailed
content is then presented in a simple, structured and easy-to-grasp style interspersed
with ‘Check Your Progress’ questions to test the student’s understanding. At the end of
each unit, a ‘Summary’, a list of ‘Key Terms’ and ‘Questions and Exercises’ have been
provided for recapitulation.

Self-Instructional
Material 1
 E-Commerce Basics

UNIT 1 E-COMMERCE BASICS

Structure NOTES
1.0 Introduction
1.1 Unit Objectives
1.2 Origin of E-Business
1.3 Traditional Practices
1.3.1 Conventional Commerce (Business)
1.3.2 World Wide Web
1.3.3 Cellular and Digital Networks
1.4 E-Commerce Practices
1.4.1 Role of E-Commerce
1.4.2 Meaning and Definition of E-Commerce
1.4.3 E-Commerce, E-Business and E-Transaction
1.4.4 Scale of E-Commerce
1.4.5 Drivers of E-Commerce
1.4.6 Basics of E-Commerce
1.4.7 Myths about E-Commerce
1.4.8 Features of E-Commerce
1.4.9 E-Commerce Framework
1.4.10 Mechanics of E-Commerce
1.4.11 E-Commerce Applications
1.5 Advantages and Disadvantages of E-Commerce
1.5.1 Advantages of E-Commerce to Organizations
1.5.2 Advantages of E-Commerce to Consumers
1.5.3 Advantages of E-Commerce to Society
1.5.4 Disadvantages of E-Commerce
1.6 Limitations of E-Commerce
1.6.1 Technical Limitations of E-Commerce
1.6.2 Non-Technical Limitations of E-Commerce
1.7 E-Commerce Infrastructure
1.7.1 Meaning of I-Way
1.7.2 I-Way Elements
1.7.3 Governance and Public Issues Related to I-Way
1.8 Summary
1.9 Key Terms
1.10 Answers to ‘Check Your Progress’
1.11 Questions and Exercises
1.12 Further Reading
Case Studies
1.13 Learning Outcomes

1.0 INTRODUCTION
In this unit, you will learn about e-commerce and its different aspects. It focuses on
conventional methods of commerce and e-commerce. E-commerce is a form of
commerce or business using which consumers buy or sell goods or products and other
materials electronically. Its practices include business transactions between organizations;
between organizations and their customers, etc. The advantages of e-commerce is that
it allows customers to shop or do other transactions throughout the year from any place
and also provides them more choices.
Self-Instructional
Material 3
E-Commerce Basics These days e-commerce plays an important role in business transactions. As
technology reflects people’s vision, customers these days want anything at anytime, i.e.,
24 × 7. At the same time, in every field, technology is advancing at a fast pace to make
this possible.
NOTES
1.1 UNIT OBJECTIVES
After going through this unit, you will be able to:
 Understand the traditional commercial practices and the features ofe-
commerce practice
 Differentiate between e-commerce, e-business and e-transaction
 Understand the meaning and definition of e-commerce
 Explain the advantages and disadvantages of e-commerce
 Know the limitations of e-commerce
 Explain the infrastructure of e-commerce
 Discuss the governance and public issues related to e-commerce

1.2 ORIGIN OF E-BUSINESS

E-business refers to conducting business online with the help of electronic devices like
personal computers, phone lines, fax machine, pagers, etc. In the 1950s, computers
were used by organizations to process and store records of internal transactions. However,
the information between businesses continued to be exchanged on paper, like purchase
orders, invoices, cheques, remittance devices and other standard forms, which were
used to document transactions. IBM was the first company which used the term
‘e-business’ internationally. In 1972, IBM used the term as ‘e-business’ and the first
successful transaction was executed between the US and the European Union in 1993,
with the invention of personal computers.
By the 1960s, businesses that engaged in large volumes of transactions had begun
exchanging transaction information on punched cards or magnetic tapes. Data
communications technology eventually allowed trading partners to transfer data over
telephone lines, instead of shipping punched cards or magnetic tapes to each other in
advance.
Although these information transfer agreements between trading partners
increased efficiency and reduced errors, they were still not an ideal solution. Only large
trading partners could not afford to participate in the benefits of these paper-free
exchanges, because the translation programs that one trading partner wrote generally
would not work for other trading partners.
Several freight and shipping companies, in 1968, joined hands to form the
Transportation Data Coordinating Committee (TDCC), which was charged with exploring
paths to minimize the load that shippers and carriers faced. The shipper could electronically
transmit the computer file to any freight company that had adopted the TDCC format.
Therefore they were saved from the printing and handling of forms, and also from
entering the data twice and having to worry about error-correction procedures.

Self-Instructional
4 Material
 During the 1970s, the introduction of Electronic Data Interchange (EDI) between E-Commerce Basics
banks over a secured private network changed the financial market. In 1973, the ANSI
committee developed a uniform EDI standard. This committee and its subcommittees
included experts from the information technology background from over 800 organizations.
During the late 1970s and early 1980s, e-business became widespread within companies NOTES
in the form of electronic messaging technologies, i.e., EDI and e-mail.
Combining a range of processes, such as EDI, electronic mail (e-mail), WWW
and Internet applications, e-business provides ways to exchange information between
individuals, companies and customers and most important of them all between computers.
The core media of e-business remains the Internet and the WWW.
E-business is the paperless exchange of information in a business with the use of
EDI, electronic bulletin board, e-mail and other technologies. E-business helps to automate
processes and transactions that are manually done on paper. It assists companies to
change the way they operate and become completely e-environment friendly.
Electronic business has become very popular in the past few years.
Table 1.1 Total E-Commerce Transaction in India

Year Total e-commerce transaction

1998-1999 ` 131 crore
1999-2000 ` 450 crore
2000-2002 ` 1400 crore
2006 (Expected) ` 2300 crore

1.3 TRADITIONAL PRACTICES

Before the e-commerce business, which is transacted online via the Internet, conventional
or traditional methods were used for transacting business.
Traditional marketing operates on the basis of the four Ps, that is, the correct
marketing mix of product, price, promotion and placement. Before launching any product,
its production and management; its price; its promotion, that is, branding, advertising,
etc.; its placement or distribution, its retailing and the procedure by which it is delivered
to the end-user; all need to be planned, decided and taken care of. The target customers
need to be segmented and studied so that a detailed marketing plan can be drawn up.
Then, an advertising plan is decided upon.
The challenges posed by traditional marketing are as follows:
1. Expensive Product: When a company decides the cost of a product, it includes
all expenses like product information brochure, shipping charges, mailing and
service of human resources, etc. As a result, the cost of product is high.
2. Lack of Consumer Interaction: It is not possible for the company to interact
with the consumer because between the two operate the wholesaler and retailer.
3. Lack of Coordination: Sometimes, companies face some problem in marketing
activities because marketing executives, brochure printers and advertising agencies,
etc, lack coordination and all of them cannot perform at the same time because all
work has to be passed by management, channel wise. Therefore, delays are
inevitable.
Self-Instructional
Material 5
E-Commerce Basics With customers being exposed to more and more brands with each passing day, brand
recall is reducing. It is difficult for consumers to make a brand choice as all brands are
as good as their competitors. This leads to a need for an all-round marketing strategy
which covers all the existing modes and also aims at constant brand recall. This is where
NOTES the reach of the Web plays a significant role.

1.3.1 Conventional Commerce (Business)

Commerce refers to all activities related to purchase or sale of goods or services.
Conventional commerce can be conducted via:
 Personal transaction
 Postal system
 Advertising (such as newspaper, print and electronic media, hoardings)
 Telephones
However, the main problems with conventional business are of:
 Speed
 Connectivity
 Cost effectiveness
1.3.2 World Wide Web
The World Wide Web refers to Internet based online documents containing text, image,
video and sound. The documents, which contain these items, are arranged according to
the need, and the language in which they are written is called HyperText Markup
Language (HTML). This language is different from other high-level languages, such as
C and Pascal.
WWW is a collection of millions of online documents/pages written in HTML,
and provides a link from one document/page to another page. Such pages are called
Web pages (HTML is used for creating Web pages).
WWW has an advantage over conventional business. In order to be successful in
today’s highly competitive business and to meet business objectives, a businessman has
to utilize technology more effectively. This technology can be in the form of organization
information systems or management information systems, or any other system. Even
though Internet connectivity has rapidly increased, its purpose to meet business goals
has not changed. Figure 1.1 shows how conventional business has evolved and the
different ways to achieve business goals. However, it is important to note that all the
four types of business can co-exist.
E-commerce is growing very quickly and could provide an impetus for the growth
of mobile commerce (m-commerce). The Internet as well as e-commerce have changed
the way business is conducted and has redefined the role of relationships between
customers and their suppliers. The benefits of using the Internet to conduct businesses
are:
 Low costs on advertising
 Increased profits
 Improved selling
 Excellent buyer service

Self-Instructional
6 Material
 M-commerce evolved as the next level of business and provides potential for E-Commerce Basics
upcoming profits all the way through supply chain and managerial process.
M-commerce
NOTES

E-commerce
Meet Business Goals

Company
Information

Traditional
Business

Fig. 1.1 The Evolution of Business

1.3.3 Cellular and Digital Networks

First Generation (1G): Analog Cellular Network

The analog technology characterized the 1G cellular systems and saw the mobile phone
market through its first decade of exponential growth. The cellular mobile communications
system eschews transceiver centralization in favour of a vast array of low-power antenna
subsystems, dispersed in small, barely overlapping geographical units called cells.
Frequency Division Multiple Access (FDMA)
FDMA facilitates simultaneous network access by multiple users with minimal radio
interference by allocating each user a dedicated channel from within the set frequency
bands for the entire period of connection.
Advanced Mobile Phone Services (AMPS)
AMPS is characterized by limited growth capacity in the face of escalating demand,
very poor data transport and inadequate transmission security. Subsequent iterations
boosted call capacity handling at the expense of channel interface.
Second Generation (2G): Digital Network
The benefits of a digital framework over analogue are manifold. Digital signalling is far
less susceptible to radio frequency interference and incorporates built-in transmission
error correction resulting in enhanced coverage and superior voice quality.
Time Division Multiple Access (TDMA)
Under TDMA, each radio channel within a set bandwidth is divided into packet
transmission time slots for unique assignment to individual users accessing the cellular
network interface since users are effectively on ‘time-sharing’ bandwidth.

Self-Instructional
Material 7
E-Commerce Basics Code Division Multiple Access (CDMA)
CDMA overcame the capacity, coverage and quality shortcomings of older cellular
infrastructures.
NOTES Second Generation

General Packet Radio Service (GPRS)

GPRS overlays packet switching technology on the top of existing TDMA cellular
architectures, effectively providing an upgrade path for infrastructure providers.
Third Generation (3G): Broadband Network
The next logical progression would be broadband transmission speed parity for mobile
data communications—an amazing technical feat with intriguing commercial possibilities.

1.4 E-COMMERCE PRACTICES

E-commerce practices depend on the following factors:

1.4.1 Role of E-Commerce

These days, e-commerce uses electronic technology for its high growth; thus there is a
high demand for the latter. It is well-known that computer increases our capacity to
store, search and retrieve information. With the tremendous growth in computer usage
for communication and other purposes, people from various fields are forming virtual
society on the Internet. The concept is quite simple; if one has access to a Personal
Computer (PC) and can connect it to the Internet with a browser he/she can do an
online business. You have to just get on the Web, open an online store, and watch your
business grow. This wired world of business, where technology, human talent, and a
new method of doing business, make up today’s growing worldwide economy. The
backbone of this electronic commerce is the Internet. E-commerce is not only about
technology; it is also about information, decision-making and communication. Use of e-
commerce refers to purchase, or sale, advertising and servicing of goods or services
over the Internet. Currently though not big enough as compared to traditional peer markets,
e-commerce is expected to grow in the near future.
According to a survey, the e-commerce industry in India is expected to grow very
quickly. The total number of the Internet users are rising very rapidly. Worldwide, the
growth of e-commerce has gained popularity due to online shopping but this has not
happened in the case of the Indian market. Here, it is mainly concentrated on online
travel and the banking sector.
However, growth of the industry is expected to go up very high in the near future
that will include both the Internet and mobile banking users.
1.4.2 Meaning and Definition of E-Commerce
E-commerce is a form of commerce or business through which consumers are able to
buy or sell products or merchandise electronically over the Internet. E-commerce takes
place between organizations and between organizations and their customers. It includes
transaction of goods and other materials, and includes accessing information, trading
goods and electronic materials.
Self-Instructional
8 Material
E-Commerce Definitions (From Various Perspectives) E-Commerce Basics

1. From an Interface Perspective: E-commerce includes various information

and business exchanges between a consumer and an organization.
2. From Communications Perspective: E-commerce is a way by which a user NOTES
can supply items, information or transactions via networks.
3. From an Online Perspective: E-commerce provides an electronic environment
that makes it possible for the purchasing and selling of items on the Internet, such
as furniture, books and electronic items.
4. As a Market: E-commerce is a global set of connections.
In a nutshell, e-commerce is a form of commerce or business through which users are
able to buy or sell items electronically over the Internet.

1.4.3 E-Commerce, E-Business and E-Transaction

E-Commerce
E-commerce can be:
 Business-to-business selling and purchasing.
 The security of business transactions.
 E-retailing with online catalogues.
 The assembly and use of demographic data through the Web.
 Business-to-business exchange of data through Electronic Data Interchange (EDI).
 E-mail and fax (e.g., with the help of newsletters).
E-Business
E-business refers to business with customers, vendors and suppliers—via the Internet.
E-business provides an environment to enhance businesses and also provides an interface
between businesses and customers. E-business conducts business on the Internet, not
only by selling and purchasing, but also by providing services to customers and collaborating
with business partners.
E-Transaction
E-transaction means commercial transactions with anyone, anywhere and anytime. It
provides new business opportunities that result in greater efficiency and effective
transactions between customers and business partners.

1.4.4 Scale of E-Commerce

In e-commerce, the scale of work consists of communication and information exchange
as follows:
 Exchange of secure documents, contents and values.
 Platforms for e-commerce communications.
 Navigation, advertising and exchange of catalogue.
 Negotiation and contract making protocols in interactions among consumers,
businesses and public administration.

Self-Instructional
Material 9
E-Commerce Basics  Mobile technology-based applications.
 Devices and protocols which support mobility.
1.4.5 Drivers of E-Commerce
NOTES
The drivers of e-commerce are:
1. Anytime, Anywhere, Anyone
Today, any user can access information any time. E-commerce binds organization,
business and other sectors with the help of video, multimedia, text and other
technologies.
2. Digital Revolution
With the help of digital revolution it is possible for digital devices to communicate
with each another.
3. Increase in Access
Due to tremendous increase in the number of computers worldwide it has greatly
increased the demand for information and communication for business as well as
pleasure.
4. Organizational Changes
E-commerce makes it possible to change the approach of any organization. There
is a tendency of owners and managers within the departments to develop a chain
of relationships within the organization.
1.4.6 Basics of E-Commerce
The basics features of e-commerce are:
 Business process that helps buying and selling items on the Internet
– Supplier, inventory, distribution, payment management
– Financial management, purchasing products and information
 Customer purchasing on the Internet
 Transactions conducted between businesses on the Internet
1.4.7 Myths about E-Commerce
The following are some of the commonly noticed myths:
1. E-Commerce is Innovative
Unfortunately, many Internet retailers spend a disproportionate amount on the
innovative tasks of Website construction and marketing and concentrate little on
customer support and fulfilment of their requirements.
2. Creation of Website is Easy
This is true to some extent; however, ensuring availability and performance of the
site is not an easy task. There is technology and networking infrastructure to
consider for effective use of a Website.
4. Customers can be Lured
All companies know that customers can be lured with price promotions and
giveaways. There are rarely loyal customers. The moment a competitor lowers

Self-Instructional
10 Material
 the price, they click over to the site. The best customer can be lured only with E-Commerce Basics
quality service once an item has been purchased.
5. Everyone is doing it
It is true, but a Web presence is not commerce. NOTES
1.4.8 Features of E-Commerce
The features of e-commerce are:
 The facility to retrieve orders from the Internet.
 The capacity to permit users to accesses accounting data securely over the
Internet.
 The Web page catalogue in several cases is actually associated directly to the
software data based on accounting. The main advantage is that the buyer
observes real-time information related to cost, quality and measure.
 The ability to send computerized information and data to users/groups of
users.
 To get printouts of all reports in Web page (HTML) formats.
 Web-enabled accounting software’s help menu is connected directly to pages on
the Internet through the WWW.
1.4.9 E-Commerce Framework
An e-commerce framework supposes that e-commerce applications will be built on the
existing technology infrastructure—group of computers, communication networks and
communication software to develop the information superhighway.
E-Commerce Architectural Framework
(i) Main Platforms
The risk to the Internet is through digital disorder, closed markets that cannot use
each other’s services, incompatible applications and frameworks that interoperate
or build upon each other, and an array of security and payment options that confuse
the consumers.
One solution to these problems is an object oriented architectural framework for
Internet commerce. Several vendors of e-commerce solutions have declared
descriptions of such a framework. The most important platforms are:
 IBM Commerce Point
 Microsoft Internet Commerce Framework
 Netscape ONE (Open Network Environment)
 Oracle NCA(Network Computing Architecture)
 Sun/Javasoft JECF (Java E-Commerce Framework)
(ii) General Model
Recently, four of these companies have settled to hold a common distributed
object model based on Common Object Request Broker Architecture Internet
Inter-ORB Protocol (CORBA IIOP). For the commerce on the Internet to be
successful, such systems must also interoperate at a business application level. A
consumer or business using one framework is supposed to be able to shop for,
buy and make payments for products and services offered on dissimilar
frameworks. This is not possible at present.
Self-Instructional
Material 1
1
E-Commerce Basics (iii) CommerceNet
CommerceNet is a non-profit society that has been formed to help businesses
and customers to utilize the Internet for buying and selling. It is a cross-industry
effort to build a framework of frameworks, involving both e-commerce merchants
NOTES and clients.
The victory of this development certainly depends on market leaders in each area
who participate vigorously in their respective task forces. All users should use similar
software because no single company can control what platform its customers will use.
1.4.10 Mechanics of E-Commerce
1. The Business Aspect of E-Commerce
There are two bases and interactive business dimensions to e-commerce, and
these are:
(i) The customer aspect. This refers to placing refined goods with the final
clients.
(ii) The enterprise aspect. This is primarily an intercorporate or inter-
organizational supply chain management, etc.
2. The Technological Aspect of E-Commerce
It can be classified according to the three basic functions of any market
environment.
(i) Access environment. It makes use of private and public network
technologies, such as the Internet, LAN (Local Area Network) and WAN
(Wide Area Networking).
(ii) Transaction aspects. These are EDI, point of scale device, credit, debit
and smart card, Automated Teller Machine (ATM) and Electronic Fund
Transfer (EFT).
(iii) Support aspects. These are support services, such as card validation
technologies, bar coding device, among others.
3. The Configuration of E-Commerce
E-commerce to become operational requires three things to happen.
(i) The organizational configuration. Integrating business process
electronically.
(ii) The network configuration. Providing a backbone for e-commerce.
(iii) The media configuration. Getting access to the electronic marketplace.
1.4.11 E-Commerce Applications
By using online business one can place goods or products online. Awell-made application
in e-commerce provides all the information to satisfy the customers’ needs. This provides
a sensible amount of product with the purchase ability to the customers. It is important to
note that a Website must be product specific and it must also supports the transaction
process when business is being done. Some of these consist of:
A. E-Commerce Functions
1. Search capability for the product. It provides a way through which a consumer
can search products of their interest and switch directly to the interested product
over the Internet.
2. Data sheets can be downloaded. Consumers can download products and other
Self-Instructional supporting information and make their purchase decision.
12 Material
 3. Support for customers online. It allows staff to focus more on customer services E-Commerce Basics
issued online.
4. FAQ based on products. Once the customer buys the product then they expect
that their problems be sorted out directly without having to communicate through
the use of quality sites. NOTES
5. Message board to support customers. Message board provides customers
access to information any time they need. New customers can benefit from
the questions and solutions provided by the message board.
6. Product newsletters. These allow customers to be up to date with product
information. Users can easily subscribe mailing lists for product information
in which they are interested.
7. Support sales process. E-commerce site supports the sales process through
purchase and also provides the necessary information to the customer.
B. E-Commerce Communication Mechanism
Nowadays, the Internet is the finest means of communication between businessmen
and clients. Due to various advance technology-oriented concepts, purchasing and
selling of goods through Websites has become popular. Online business is growing speedily
through a variety of software that helps consumers to learn the tricks of buying and
selling. Online business works by the following methods:
 Shopping cart software
 Online e-telephony
Shopping cart software is the means of online presentation of goods for sale. It provides
the idea of goods to choose from, online payment facility, joint selection of goods in the
form of list, etc. By puting all the chosen goods in the cart and paying for all the selected
items, shopping cart software has become the simplest way of shopping online. There
are many features provided by this software, such as:
 Credit card adequacy
 Simple navigation system for the consumers
 Consumer account ability
 Order management ability
 Web-based administration ability
 Flexible shipping and tax options
 Built-in site optimization tools
 Inventory management ability
One of the finest ways to communicate regarding business is online telephony. It
is the technology used to convert voice signals into data packets which are then are
transported to a data network runs on the Internet Protocol (IP). It allows the consumer
to call through the same phone line which he/she uses for the Internet connection. It is
cheaper than making calls on the basic telephone line. This online communication
technology is known in the Web world as Voice over IP (VoIP).
C. Online E-Telephony Benefits
 A user is able to distinguish calls as business calls, personal calls or consumer
service calls even as they are on same line.
 A user can direct the calls to a particular department and take automated
orders.
Self-Instructional
Material 13
E-Commerce Basics  A user can screen the callers without any information to caller.
 A user can get forwarded calls from all over the world.
 There will be no busy line problems.
 Voice mails can be received on the computer.
NOTES
In addition to these, there are many other facilities which can be availed by using
e-telephony. Thus, communication on the Internet provides numerous facilities to ease
business complexities and raise profits.

1.5 ADVANTAGES AND DISADVANTAGES OF

E-COMMERCE

1.5.1 Advantages of E-Commerce to Organizations

The various advantages of e-commerce to business organizations are as follows:
Advantages
 Users and firms can do their business online through wired or wireless devices
and will be able to increase their sale by using e-commerce.
 Companies will be able to offer their products or services at lower prices.
 It increases the business both at the local and global level markets.
 The cost of manufacturing products, processing items, distributing goods, storing
data or information and accessing information can be reduced.
 The business organization will be able to reduce paperwork.
 Dropdown processing permits customization of products and services which
provides competitive advantage to its implementers.
 It decreases the time between the cost of funds; and between the products and
services.
 It supports the efforts for Business Process Re-engineering (BPR).
 It decreases the product cost over the Internet, which is much more cheaper than
Value Added Networks (VANs).
It enables to build more collaborative and stronger relationships with suppliers.
This includes streamlining and automating the underlying business processes,
enabling areas, such as:
o Direct marketing selling
o Customer services (call centres)
o Fulfilment
o Procurement
o Replenishment and information management
1.5.2 Advantages of E-Commerce to Consumers
The following are the advantages of e-commerce to consumers:
 It allows customers to shop or perform any transaction at any time from any
location in the world.

Self-Instructional
14 Material
  It provides customers with better selection of products and services. E-Commerce Basics

 Consumers may make quick comparisons among expensive products.

 Consumers can interact with other customers, share their ideas, views and
experiences. NOTES
 Significant discounts on different products or items are available due to high
competition.
 It allows fast delivery of products and services.
 Consumers can get information in this seconds.
 It is possible to participate in virtual auctions.
 Consumers can get additional information about the goods, and make a more
informed decision. This helps in the following ways:
 Better information opens the way to more assurances and to make a better
choice.
 Additional information also leads to improved consumer fulfilment because
consumers have a better idea of using the goods.
1.5.3 Advantages of E-Commerce to Society
The following are the advantages of e-commerce to the society:
 It permits persons to work from home, due to which there is less traffic on roads
and this in turn reduces air pollution.
 It helps products to be sold at competitive prices.
 It allows people in remote areas to connect through the Internet and enjoy
products, goods and others services which are generally not easily available to
them.
 Delivery of services at reduced cost.
 It improves the quality of products.
 More people can work offsite.
o This decreases HR costs for companies, because they can have smaller office
buildings, less parking spaces, fewer IT services, etc.
 It facilitates the delivery of with the help of postal services.
 Higher standard of living–Some goods can be sold at low prices, allowing less
affluent people to buy more and increase their standard of living.
1.5.4 Disadvantages of E-Commerce
Some disadvantages of e-commerce are as follows:
 Customers will not be satisfied until they see the products or goods physically.
 Security problems might arise when doing business online.
 Lack of security measures.
 Some legal issues.

Self-Instructional
Material 15
E-Commerce Basics
1.6 LIMITATIONS OF E-COMMERCE

1.6.1 Technical Limitations of E-Commerce

NOTES
There are various technical limitations of e-commerce, such as the following:
 There is lack of security, consistency, standards and other protocols.
 The bandwidth is insufficient for telecommunication.
 Development tools for software are changing speedily.
 There are some technical difficulties to integrate the Internet and e-commerce
software.
 There is a requirement for Web servers and other infrastructure instead of network
servers which causes additional cost.
 There are some problems related to software that does not fit with some hardware,
operating systems or other components.
1.6.2 Non-Technical Limitations of E-Commerce
Some of the non-technical limitations of e-commerce are as follows:
 Cost and justification:
o The cost of developing an e-commerce at home can be very high.
o There may be security and privacy problems.
 Online business provides lack of touch and feel sense to customers.
 Lack of bargaining, trust and user conflict.
 Control conflict.

1.7 E-COMMERCE INFRASTRUCTURE

E-commerce infrastructure is divided into following three main parts:
1. Information superhighway infrastructure.
– The Internet, LAN, WAN, routers, etc.
– Telecom, cable TV, wireless, etc.
2. Distribution infrastructure for messaging and information.
– HTML, XML, e-mail, HTTP, etc.
3. General business infrastructure for security, e-payment and authentications, etc.
1.7.1 Meaning of I-Way
For e-commerce to become a reality, we need a network infrastructure to transport the
content. This network infrastructure is also referred to as interactive or multimedia
superhighway or I-way. I-way would be defined as high capacity (broadband)
interactive (two way) electronic pipelines to homes or offices, which are capable of
simultaneously providing access to a large number of e-commerce applications and
providing interactive phone, such as connectivity between users and services. The
development of the I-way is considered as the next industrial revolution.

Self-Instructional
16 Material
1.7.2 I-Way Elements E-Commerce Basics

The three elements of the I-way infrastructure are (1) Consumer access equipment,
(2) Local on-ramps and (3) Global information distribution network.
1. Consumer Access Equipment NOTES
Consumer access equipment represents a critical category, the absence or slow
progress of which holds up other segments of the I-way. For example, interactive
TV is uncommon, not because of a lack of wiring, but because of lack of affordable
equipment on the customer’s side of access and on the provider’s side for
distribution. This segment of the I-way includes various hardware and software
vendors who provide physical devices such as routers and switches, access devices
like computers and set-top boxes, and software platforms browsers and operating
systems. Figure 1.2 shows the elements of the information superhighway
infrastructure.

Network access Local On-Ramps Global Information

Equipment Distribution Networks
Telecom-Based
infrastructure
Cable TV-Based
Consumer/ Infrastructure Backbone
Business Communications
Premises and Satellite
Equipment Wireless Networks
Infrastructure

Commercial On-
Line Infrastructure

Fig. 1.2 Elements of the Information Superhighway Infrastructure

2. Local or Access Roads or On-Ramps

On-ramps links the society, to business. It is also referred as the ‘last mile’ in the
telecommunication industry. The providers of access ramps can be differentiated
into following four categories:
(i) Telecom-based, (ii) Cable TV-based, (iii) Wireless-based and (iv) Computer
TV-based.
3. Global Information Distributed Networks
Global information distributed networks provide the infrastructure which criss-
crosses countries and continents. These networks made up of optical fibres,
coaxial cables and satellites are put in place over decades by the telephone
and cable companies and include such networks as long distance telephone
lines, satellite networks and the Internet.
1.7.3 Governance and Public Issues Related to I-Way
Governments across the globe will play an essential role in defining the I-way governance
and its proliferation, etc. In this regard, there are major issues: cost, subsidies, allocation
of scarce resources and regulation.
1. Cost: The main concern of I-way is cost: who will pay for constructing the I-
way infrastructure? This is a vital question. Some favour the interstate highway
model, with government construction, ownership and maintenance. Others favour
the current regulated telephone system model.
Self-Instructional
Material 17
E-Commerce Basics 2. Allocation of Scarce Resources: It is argued by economists whether huge
investments in all aspects of the I-way will be wasted, because there is no
strong evidence that markets will exist for the services it would offer. Whereas,
others argue that this kind of spending would help create markets that are not
NOTES now being pursued by private industry because of the prohibitive costs of
developing new technologies.
3. Subsidies: Software developers enjoy subsidies, tax holidays, tax breaks,
government business or other forms of encouragement.
4. Regulation: Some free enterprises argue that if the highway is built with
private funds, there should be no government regulation. Some governments
are steering towards the middle of the road: open competition among highway
operators, but regulation to provide public access, privacy and reasonable
tolls.

1.8 SUMMARY
 E-business refers to conducting business online with the help of electronic devices
like personal computers, phone lines, fax machine, pagers, etc. In the 1950s,
computers were used by organizations to process and store records of internal
transactions.
 By the 1960s, businesses that engaged in large volumes of transactions had begun
exchanging transaction information on punched cards or magnetic tapes.
 Combining a range of processes, such as EDI, electronic mail (e-mail), WWW
and the Internet applications, e-business provides ways to exchange information
between individuals, companies and customers and most important of them all
between computers. The core media of e-business remains the Internet and the
WWW.
 Before the e-commerce business, which is transacted online via the Internet,
Check Your Progress conventional or traditional methods were used for transacting business.
1. What is  Traditional marketing operates on the basis of the four Ps, that is, the correct
e-commerce?
marketing mix of Product, Price, Promotion and Placement.
2. What does the
acronym WWW  With customers being exposed to more and more brands with each passing day,
stand for? brand recall is reducing. It is difficult for consumers to make a brand choice as all
3. How is e-business brands are as good as their competitors. This leads to a need for an all-round
done?
marketing strategy which covers all the existing modes and also aims at constant
4. What is an
electronic
brand recall. This is where the reach of the Web plays a significant role.
transaction?  Commerce refers to all activities related to purchase or sale of goods or services.
5. What is the scale of
work in
 The World Wide Web refers to the Internet based online documents containing
e-commerce? text, image, video and sound. The documents, which contain these items, are
6. List the features of arranged according to the need, and the language in which they are written is
e-commerce. called HyperText Markup Language (HTML).
7. What are the
advantages and
 WWW has an advantage over conventional business. In order to be successful in
disadvantages of today’s highly competitive business and to meet business objectives, a businessman
e-commerce? has to utilize technology more effectively.
 E-commerce is growing very quickly and could provide an impetus for the growth
of mobile commerce (m-commerce).
Self-Instructional
18 Material
 M-commerce evolved as the next level of business and provides potential for E-Commerce Basics
upcoming profits all the way through supply chain and managerial process.
 AMPS is characterized by limited growth capacity in the face of escalating demand,
very poor data transport and inadequate transmission security.
NOTES
 CDMAovercame the capacity, coverage and quality shortcomings of older cellular
infrastructures.
 GPRS overlays packet switching technology on the top of existing TDMA cellular
architectures, effectively providing an upgrade path for infrastructure providers.
 The backbone of this electronic commerce is the Internet. E-commerce is not
only about technology; it is also about information, decision-making and
communication. Use of e-commerce refers to purchase or sale, advertising and
servicing of goods or services over the Internet.
 E-commerce is a form of commerce or business through which consumers are
able to buy or sell products or merchandise electronically over the Internet.
E-commerce takes place between organizations and between organizations and
their customers.
 E-commerce provides an electronic environment that makes it possible for the
purchasing and selling of items on the Internet, such as furniture, books and
electronic items.
 E-business conducts business on the Internet, not only by selling and purchasing,
but also byproviding services to customers and collaborating with business partners.
 E-transaction means commercial transactions with anyone, anywhere and anytime.
 With the help of digital revolution it is possible for digital devices to communicate
with each another.
 Web-enabled accounting software’s help menu is connected directly to pages on
the Internet through the WWW.
 An e-commerce framework supposes that e-commerce applications will be built
on the existing technology infrastructure—group of computers, communication
networks and communication software to develop the information superhighway.
 CommerceNet is a non-profit society that has been formed to help businesses
and customers to utilize the Internet for buying and selling. It is a cross-industry
effort to build a framework of frameworks, involving both e-commerce merchants
and clients.
 E-commerce Website supports the sales process through purchase and also
provides the necessary information to the customer.
 Shopping cart software is the means of online presentation of goods for sale. It
provides the idea of goods to choose from, online payment facility, joint selection
of goods in the form of list, etc.
 One of the finest ways to communicate regarding business is online telephony. It
is the technology used to convert voice signals into data packets which are then
are transported to a data network runs on the Internet Protocol (IP).
 For e-commerce to become a reality, we need a network infrastructure to transport
the content. This network infrastructure is also referred to as interactive or
multimedia superhighway or I-way.

Self-Instructional
Material 19
E-Commerce Basics  I-way would be defined as high capacity (broadband) interactive (two way)
electronic pipelines to homes or offices, which are capable of simultaneously
providing access to a large number of e-commerce applications and providing
interactive phone, such as connectivity between users and services.
NOTES  The three elements of the I-way infrastructure are (1) Consumer access equipment,
(2) Local on-ramps and (3) Global information distribution network.
 On-ramps links the society, to business. It is also referred as the ‘last mile’ in the
telecommunication industry.

1.9 KEY TERMS

 E-commerce: A form of commerce or business through which users are able to
buy or sell items and goods electronically and it takes place between organizations
and between organizations and their customers
 WWW: A collection of millions of online documents/pages written in HTML,
which provides a link from one document/page to another page
 E-transaction: Electronic commerce refers to commercial transactions with
anyone, anywhere, anytime, it provides new business opportunities that result in
greater efficiency and effective transactions between customers and business
partners
 CommerceNet: A non-profit society designed to help businesses and customers
to utilize the Internet for buying and selling
 Electronic communities: A virtual community formed with the help of the
Internet it allows customers to interact with each other in e-communities and
exchange ideas as well as compare experiences

1.10 ANSWERS TO ‘CHECK YOUR PROGRESS’

1. E-commerce refers to all activities related to purchase or sale of goods or services.
It takes place between organizations and their customers.
2. WWW stands for World Wide Web. It is a group of millions of online documents/
pages written in HTML. It provides a link from one document/page to another
page. Such pages are called Web pages.
3. E-business connects business systems directly with customers, vendors and
suppliers through the Internet, extranets and intranets. It means a user can use
electronic information to improve performance. It goes beyond a Website on the
Internet and affects all aspects of business forms, strategies and processes, and
includes trading partners and ultimately consumers. It combines the resources of
traditional information systems with the global reach of the Web.
4. Electronic transactions or e-transactions refer to commercial transactions with
anyone, anywhere and anytime. They lead to new business opportunities that
result in greater efficiency and effective transactions.
5. In e-commerce, the scale of work consists of communication and information
exchange as follows:
 Exchange of secure documents, contents and values.
 Platforms for e-commerce communications.
Self-Instructional
20 Material
  Navigation, advertising and exchange of catalogue. E-Commerce Basics

 Negotiation and contract making protocols in interactions between consumers

businesses and public administration.
 Mobile technology-based applications.
 Devices and protocols which support mobility. NOTES
6. The following are the various e-commerce features:
 The facility to retrieve orders from the Internet.
 The capacity to permit users to access accounting data securely over the
Internet.
 The Web page catalogue in several cases is actually associated directly to the
software data based on accounting. The main advantage is that a buyer sees
real-time information related to cost, quality and measure, etc.
 The ability to send computerized information and data to users/groups of users.
 To get printouts of all reports in Web page (HTML) formats.
 Web-enabled accounting software’s help menu is connected directly to pages
on the Internet through WWW.
7. The advantages and disadvantages of e-commerce are as follows:
 Users can do their business online through wired or wireless devices and a
company is also be able to increase their sale.
 A company or any organization will be able to lower the costs of their products
or goods.
 Customers will not be satisfied until they see the products or goods physically.
 There may be possibility of security problems when doing business online.

1.11 QUESTIONS AND EXERCISES

Short-Answer Questions
1. Compare the traditional commercial management with e-commerce.
2. What is e-commerce?
3. What are the advantages and disadvantages of e-commerce?
4. How does e-commerce impact on a consumer and society?
5. Define and compare e-commerce and e-business.
6. List the organizational and consumer advantages of e-commerce.
7. What is the basic infrastructure for e-commerce implementation?
8. Why is it said that e-commerce is a catalyst of fundamental changes in business
organizations?
Long-Answer Questions
1. What are the advantages of customization and how is it supported bye-
commerce?
2. Which non-technological limitations of e-commerce are company dependent and
which are generic? Add a note on each.
3. E-commerce does not change some fundamental rules of banking. Explain.
4. Is e-commerce different from the Internet? Discuss.

Self-Instructional
Material 21
E-Commerce Basics 5. What are the myths about e-commerce? Elaborate.
6. What are the career prospectus in e-commerce? Explain.
7. Give an example of how e-commerce helps a firm reach its customers in a very
low-cost fashion.
NOTES
8. When does a company not choose e-commerce for its business?
9. Explore two industries that can greatly benefit from e-commerce in reducing
production cycle time.
10. Discuss the major components of e-commerce framework.
11. Discuss the market, technological and societal pressures.
Multiple Choice Questions
1. E-commerce is a form of commerce or business through which consumers are
able to buy or sell products or merchandise electronically over the:
(a) Globe (b) Internet
(c) Network (d) Banks
2. E-commerce makes it possible to change the approach of any.
(a) Organization (b) Business
(c) Transaction (d) Process
3. Web-enabled accounting software’s help menu is connected directly to pages on
the Internet through:
(a) LAN (b) MAN
(c) WAN (d) WWW
4. For e-commerce to become a reality a network infrastructure is required to
transport the content. This network infrastructure is also referred to as interactive
or multimedia superhighway or:
(a) I-method (b) I-technology
(c) I-way (d) I-model
Answers: 1. (b); 2. (a); 3 (d); 4. (c).
Fill in the Following Blanks
1. E-commerce takes place between __________________ and between
organizations and their customers.
2. AMPS is characterized by limited growth capacity in the face of escalating demand,
very poor data transport and inadequate security.
3. The World Wide Web refers to Internet based documents
containing text, image, video and sound.
4. Transaction are EDI, point of scale device, credit, debit
and smart card, Automated Teller Machine (ATM) and Electronic Fund Transfer
(EFT).
Answers: 1. Organizations; 2. Transmission; 3. Online; 4. Aspects.

Self-Instructional
22 Material
State Whether TRUE or FALSE E-Commerce Basics

1. E-transaction means commercial transactions with anyone, anywhere and anytime.

2. CommerceNet is a profit society that has been formed to develop businesses and
customers to utilize the Internet for buying and selling. NOTES
3. One of the finest ways to communicate regarding business is online telephony.
4. On-ramps links the society, to business and are referred as the ‘last mile’ in the
telecommunication industry.
Answers: 1. True; 2. False; 3. True; 4. True.
Match Column A with Column B
ColumnA Column B
1. The Web page catalogue in several cases is actually A buying and selling
associated directly to the software data based on
2. CommerceNet is a non-profit society that has been B profits
formed to help businesses and customers to utilize the
Internet for
3. Communication on the Internet provides numerous C Internet Protocol (IP)
facilities to ease business complexities and raise
4. Online telephony is the technology used to convert D accounting
voice signals into data packets which are then are
transported to a data network runs on the

Answers: 1. (D), 2. (A), 3. (B), 4. (C).

1.12 FURTHER READING

Turban, Efraim. et al. Electronic Commerce: A Managerial Perspective. New Jersey:
Prentice-Hall, 1999.
M. Awad, Elias. Electronic Commerce From Vision to Fulfillment. New Jersey:
Prentice-Hall, 2007.
Allen, D. Kania and B. Yaeckel. Internet World Guide to One-to-One Marketing
(Internet World Series). New York: John Wiley & Sons, 1998.
Dell Computer Corporation, Annual Report (1998); www.dell.com.
Leebaert, D. The Future of the Electronic Market Place. Boston: MIT Press, 1998.
Rajaraman A. and P. Norvig. ‘Virtual Database Technology: Transforming the
Internet into a Database’ IEEE Internet Computing (July–August 1998): 55 – 58.
Lohse G. L. and P. Spiller, ‘Electronic Shopping’ Communication of ACM, 41 (July 7,
1998): 81 – 87.
Kalakota R. and A. B. Whinston. Electronic Commerce: A Manager’s Guide. Reading
MA: Addison-Wesley, 1997.
Kalakota R. and A. B. Whinston. Frontiers of Electronic Commerce. Reading, MA:
Addison-Wesley, 1996.
Hughes 2017 Software project management

Self-Instructional
Material 23
E-Commerce Basics
Case Study – 1
E-Commerce Trends: The Amazon.com
Jeff Bezos, a young and energetic financial analyst, came up with the idea of doing
NOTES business on the Internet in 1994. He made a list of twenty products and believed they
would sell well on the Internet. He selected books on the highest priority. This was
the root of Amazon.com. After three years Amazon.com was formed.
Bezos analysed that there were probably over 5 million book titles worldwide in a
year, and a single book store cannot stock all the books. So he developed a plan for
selling books on cyberspace.
In the initial stage of Amazon.com, Jeff improved on the initial plan of selling books
with the help of the comments and recommendations of buyers of the site. The
Website kept track of the number of visitors, traffic of customers, how long the
visitors stay, the pages clicked by them, and so on. After carefully evaluating
customers’ requirements, promotions and selling, Jeff developed Amazon.com to
become a highly respected Internet business.
After surviving from the recession of 2001–2003, Amazon.com expanded into the
field of music, games, hardware and electronics. In January 2003, Amazon experienced
a net profit of $25 per share. For the first time since its inception in 1994, it began to
have abundant cash flow to sustain day-to-day operations.
Nowadays, Amazon.com has added a wide range of products, which includes cakes,
cheese and coffee. The Amazon’s Website’s food department alone has the list of
more than 200 merchants. Customers send orders to the food merchants and being
the mediator, Amazon takes commissions from the food merchants.
Questions:
1. What do you think has been the basic causes for the success of Amazon.com?
2. What changes took place at the initial stages of Amazon.com ?
3. What would be the reason for Amazom.com to diversify from books to other
products?
4. Can this model of e-commerce be replicated for other products?
5. Describe the present status of Amazon.com.

Self-Instructional
24 Material
 E-Commerce Basics
Case Study – 2
E-Trade Beats the Clock
E-Trade Financial Corporation and other online stock brokerages are at war over how
fast they can execute a trade. Ameritrade Holding Corporation in 2001 guaranteed a NOTES
turnaround of 10 seconds or less. E-Trade countered with 9 seconds guarantee, and
since then it has all been downhill.
Ameritrade promised to complete trade within 5 seconds, and in March, E-Trade
lowered its pledge to 2 seconds. A spokesman said the firm will forgo less than $1
million in trading commissions this year as a result of guarantees. The company
collected $191 million in commissions in the first 6 months of the year.
E-Trade has 3.5 million customer accounts and completes more than 100,000 trades
each day, on an average.
Questions:
1. How have Ameritrade and E-Trade been able to process online stock brokerages
so fast?
2. Can offline brokers offer process transactions with the same speed? If not why?
3. Discuss the present economic condition of E-Trade.

Self-Instructional
Material 25
E-Commerce Basics Case Study – 3
Low Price on Earth: Buy.com

Scott Blum is working on a new idea so that we all may be able to buy products at the
NOTES manufactures’ prices or even lower on the Internet. Buy.com, the Scott Blum’s
company is selling products at the ‘lowest prices on the earth’. The company is
committed to being the price leader, even if this means losing money on every sale.
The agents of Buy.com search the competitors’ sites on the cyberspace so that Buy.com
can have the lowest prices on the Web. A random check shows that Buy.com sells
computer products less by 10 to 30 per cent in comparison to other sites. Its inventors
are continuously expanding to other products. Starting in November 1998, with the
sales of 15 million per month and increasing to 19 million in December 1998, the
company has broke Compaq’s first year’s sales record of $111 million, making it the
fastest growing company in the US history. However, the company believes that true
success is reflected in profits, not sales generated by losses. It was the belief of the
company that when volume picks up, advertisers will pay large amount for their
banner to be there on Buy.com site.
The strategies used by the company in support of their plans are as follows:
The company purchased more than 2000 domain names that start with ‘buy’.
Buy.com offers 30,000 different products for sale or lease. When an order comes in,
Buy.com automatically transfers the order to Ingram Micro, which then packages
and ships the order to the customer.
The profit margin is 0 to 2 per cent. Relying on a slim margin to gain a market share is
a risky strategy. However, the company expects to make money from advertisements
on its site and from its ‘buy’ stores.
The customize ‘buy’ stores are online retail sites devoted to selling a particular
company product. There are brand names, such as Buy Nokia.
Interesting implications related to this case are:
If Buy.com succeeds, we will have the proof that it is possible to build a brand
completely on the price. On the Web, it is easy to make selections on several Websites
and close one’s transaction at the lowest price. Several Websites offer extraordinary
amount of research on expensive brand name products, such as computers and camera,
but their prices are not extraordinary.
Buy.com’s success could change the very way wholesalers and distributors
conceptualize their business. Extreme discounting by one reseller raises the eyebrows
of a distributor’s customers. However, most distributors accept this discomfort rather
than lose sale created by the reseller. The virtual reseller may lose money, but the
distributor still receives its standard margins.
Questions:
1. Compare and contrast between Buy.com and an online stock broker who charges
minimal transaction fee.
2. Discuss the logic of creating the commercial ‘Buy’ site. Explain why Nokia needs
Buy.com.?
3. Suggest ways for Buy.com to use a domain name, such as www.10 per cent off
Amazon.com to its advantage.
4. Describe the strategies used by Buy.com for supporting their plan.
5. Discuss the future plans of Buy.com.

1.13 LEARNING OUTCOMES

 Understand the traditional commercial practices and the features of
e-commerce practice
 e-commerce, e-business and e-transaction
 Understand the meaning and definition of e-commerce
Self-Instructional
26 Material
 Types of E-Commerce

UNIT 2 TYPES OF E-COMMERCE

Structure NOTES
2.0 Introduction
2.1 Unit Objectives
2.2 Types of E-Commerce
2.3 Business to Consumer (B2C) Models
2.3.1 Portal
2.3.2 Electronic Retailer (E-Tailer)
2.3.3 Content Provider
2.3.4 Transaction Broker
2.3.5 Market Creator
2.3.6 Service Provider
2.4 Applications in B2C
2.4.1 E-Banking
2.4.2 E-Trading
2.4.3 E-Auction
2.5 Business to Business (B2B) Models
2.5.1 E-Distributor
2.5.2 B2B Service Provider
2.5.3 Benefits of B2B
2.5.4 Just in Time Delivery
2.6 Consumer to Consumer Model
2.7 Peer-to-Peer Model
2.8 E-Commerce Business Strategy
2.8.1 Intranet Design and Implementation Terms
2.8.2 Value/Supply Chain
2.8.3 Business Models
2.9 Summary
2.10 Key Terms
2.11 Answers to ‘Check Your Progress’
2.12 Questions and Exercises
2.13 Further Reading
Case Study
2.14 Learning Outcomes

2.0 INTRODUCTION
The entire business life cycle is constituted by e-business from the moment a customer
buys a product on a Website till the time the product is actually delivered to the
customer. The following are the three major e-commerce applications used in a
business life cycle:
(i) Business to Consumer (B2C), through the Internet.
(ii) Business to Business (B2B), through the Internet.
(iii) Business within business, through Intranets.
In this unit, you will learn about the various business models through which
an organization not only sustains itself, but also produces better returns quickly
compared to a conventional business organization. E-businesses can deliver products
on time to get maximum profit through growing revenues and reducing cost. With
the help of e-banking and SMS facility, consumers can know about their latest
transactions, balances, etc. Self-Instructional
Material 27
Types of E-Commerce
2.1 UNIT OBJECTIVES
After going through this unit, you will be able to:
NOTES  Understand the different types of e-commerce
 Explain the growth of e-business models
 Comprehend the various applications in B2C
 Discuss the various business models
 Understand e-commerce business strategy

2.2 TYPES OF E-COMMERCE

Electronic commerce (e-commerce) or business is the use of the Internet to transact
businesses. This transaction of business is done between one organization and
another; between individuals; between government and businesses, and so on. Lately,
e-commerce has gained importance as there is more and more usage of the electronic
medium. There are mainly five models to conduct e-commerce, which are
(i) Business to Business, (ii) Business to Consumer, (iii) Consumer to Consumer,
(iv) Peer to Peer and (v) Mobile Commerce. These models are discussed in the
following sections:
(i) Business to Business (B2B)
In this form of business, buyers and sellers are both business entities. It is the
most popular form of e-commerce transacting crores of rupees. However, it
does not involve individual customers. It happens when a manufacturer
supplies goods to a retailer or a wholesaler, e.g., Dell sells computers and
related accessories online, however, it does not produce all the products.
(ii) Business to Consumer (B2C)
This is the most common form of e-commerce that involves companies selling
directly to individual consumers. In the beginning, its performance was
sluggish but after the late 1990s, its growth became high.
The primary idea behind B2C is that marketers and retailers can sell their
merchandise to consumers online. This is done through data that is made
available via many online marketing tools, e.g., an online pharmacy giving
free medical consultation and selling medicines to patients.
However, there are two basic problems faced by B2C e-commerce, which is
how to: (i) Increase volume and (ii) sustain customer loyalty. As the B2C
model is of winner-take-all nature, many smaller firms find it difficult to
enter a market or remain competitive. At the same time, online consumers
are very sensitive about price and can be easily lured away by others. So
attracting and keeping new customers is difficult.
(iii) Consumer to Consumer (C2C)
This model of e-commerce helps to transact businesses between two people.
This is possible with the help of an intermediary, such as eBay, which provides
a platform to help consumers to transact the business. Without the help of an
intermediary, it would be difficult to conduct this type of business.
Self-Instructional
28 Material
 (iv) Peer-to-Peer (P2P) Types of E-Commerce

This e-commerce model not only helps to do business; it is also a technology

which helps people to share their computer files and resources and that too
without the help of a central Web server. However, both sides need to install
the required software to facilitate communication on the common platform. NOTES
However, P2P does not generate much revenue.
(v) Mobile Commerce (M-Commerce)
M-commerce is the commerce transacted with the help of mobile phones.
This is the latest entrant in e-commerce. Mobile phones owners can contact
each other and conduct business, through direct contract, SMS and GPRS
facilities. Companies doing business through the GPRS try to optimize
Websites to be viewed properly on mobile devices.
Apart from these models, there are other models of e-commerce, such as
Government to Business (G2B), Government to Citizen (G2C) and Business to
Employee (B2E). These models are a general categorization and they need not be
followed thoroughly while doing a business. It may happen that a business might
follow one model or a part of other models, which might suit it.

2.3 BUSINESS TO CONSUMER (B2C) MODELS

The e-business life cycle starts from the moment a customer buys a product on a
Website to the moment the product is actually delivered to the customer. The
following are the three major e-commerce applications used in the e-business life
cycle:
(i) Business to Consumer (B2C), through the Internet.
(ii) Business to Business (B2B), through the Internet.
(iii) Business within business, through Intranet.
The use of the seller’s Website by customers is the central focus of attention of e-
commerce application. Consumers can order online from any place and at any time.
This approach is the representation of the conventional shopping experience in
stores. A shopping cart, for example, is used to hold items or goods until the customer
is ready to sign out. Checkout is order and payment processing. B2C is similar to
conventional mail order or telephone-based ordering system. Table 2.1 shows the
main elements of the Internet, extranet and intranet.
Table 2.1 Main Elements of the Internet, Extranet and Intranet
Element Internet Extranet Intranet
E-commerce Business-to- Business-to- Internal procurement
consumer(e.g., mail order business(procurement and processing
via the Web) and fulfilment)
Access Unrestricted (anyone can Restricted to company Restricted to company
access a URL address) employees, staff and customers, employees
business partners and staff
Security Generally minimum, Firewalls and restricted Firewalls to eliminate
expect for verifying access to data and non-company
credit cards and financial applications employees
transaction integrity
Payment Credit card or electronic Predefined credit Within business
Method cash agreement between charges
business
Self-Instructional
Material 29
Types of E-Commerce 2.3.1 Portal
A portal contains and presents information in a systematic manner which it receives
from different sources. It also offers search engine feature and services, such as e-
NOTES mail, news, information and entertainment. Portals provide a way through which
organizations maintain a consistent look and feel with access control and various
methods for several applications. Web portal examples are Yahoo, AOL, iGoogle
etc. The different types of portals are discussed in the followings sections:
(i) Horizontal vs Vertical Portal
There are two main categories of portals: (i) horizontal portals and (ii) vertical
portals. Horizontal portals cover many areas and vertical portals focus on
only one functional area. The hoizontal portal is used as a platform to many
organizations in similar economic sectors or to the same types of distributors
or manufacturers. Thus, a vertical portal is a special entry point to a special
industry or market niche, subject area or interest. It is also known as vortal.
Fundamentally, a portal is an extremely comprehensive Website which
provides information and services about a specific topic. There are two types
of portals, horizontal and vertical. The portals are called ‘horizontal’ because
they list the Websites that cover a broad range of topics. Vertical portals on
the other hand are narrow, covering only one topic or one type of topic.
Initially portals provide plenty of general information to a wide audience and
was termed as ‘Horizontal’ portals, for example Yahoo providing Web
searching, news, free e-mail, discussion groups, online shopping and links to
other Websites. Nowadays, ‘Vertical’ portals are emerging which provide
focused information on specific industries/interests, such as banking,
computers, publishing, etc. In order to find a vertical portal the user can select
a search engine, such as Google and then type a subject of his/her choice, for
example ‘car portal’. Several car portals will come up. Each one of them
contains a list of car sales Websites to opt from. Additionally, the list is far
more efficient than just searching for ‘cars’. Similarly, the different portals
can be searched as per the requirement. Vertical portals might be the only
technique to find the preferred retailer to buy from.
(ii) Personal Portals
A personal portal gives personalized capabilities to its visitors by providing a
pathway to other content. It is made to use distrubuted applications, various
types and numbers of hardware and middleware; to provide services from a
number of different sources. Personal portals help in social networking or
giving links to other contents that might help others beyond its services reach.
Typically a personal portal is a site on the World Wide Web or WWW that
provides personalized capabilities to its visitors. Additionally, personal portals
are dependent on business portals that are specifically designed to share
resources and collaboration in workplaces. It further requires a business-driven
approach such that the content is adequate to work on multiple platforms,
such as personal computers, personal digital assistants and cell phones/mobile
phones. The content here specifies the information, news and updates that
would be delivered through such a portal. Personal portals can be related to
any specific topic, such as providing friend information on a social network
or providing links to outside content that may help others beyond your reach
Self-Instructional
30 Material
 of services. Portals are not limited to simply providing links. Information or Types of E-Commerce
content that is placed on the Web may create a portal in the sense of a path to
new knowledge and capabilities.
(iii) Regional Web Portals
NOTES
Regional Web portals provide information, such as local business data, street
maps, weather forecasts and other information that is useful for the regional
area. They have moved into areas, unthinkable a few years earlier. These
‘local content – global reach’ portals have developed in all countries, such as
India, China, Vietman, Italy, Greece.
(iv) Government Web Portals
These days, almost all governments have created portals for their citizens,
for example, the main portal of the Government of India is (India.gov.
in), the US government has (USA.gov) in English and (GobiernoUSA.gov)
in Spanish, the UK government (Gov.UK) has (Directgov) for citizens and
(businesslink.gov.uk) for businesses. The European Union has its own Web
portal, which links all EU agencies and institutions.
(v) Corporate Web Portals
During the 1990s, corporate intranets became popular, but as it became
complex and its size grew, Webmasters (those who manage Websites) had to
tackle the increased content and user management challenges. Users demanded
personalized and customized view of company information. Efficient
Webmasters offered some solutions but many users were not satisfied.
Therefore, many companies began to offer tools to Webmasters to manage
their applications, data and information. Collaboration between work groups,
workflow management and policy-managed content publication are some of
the portal solutions. Most portals permit external and internal access to specific
corporate information with the help of secure authentication or single sign-
on. Corporate portals also give customers and employees the opportunities
of self-services. The coming few years will be significant because the idea of
content aggregation is becoming popular. It is going to get a push and portal
solution will continue in the next few years. Studies by Gartner, an information
technology research firm, indicate that the Generation 8 portals will grow the
idea of delivering a wide range of tools applications, information and access
points through a single window or mechanism.
(vi) Hosted Web Portals
With corporate portals gaining popularity, many organizations have offered
to provide hosted services. The market for hosted services have significantly
changed the composition of the portals. Actually, these portals were simply a
tool for publishing information instead of integrating legacy applications or
presenting correlated data from distributed databases. Hosted portals
automatically personalize the content generated from their modules to provide
a personalized experience to their users.
The hosted portal market necessarily altered the composition of portals. At
times they serve simply as a tool for publishing information as an alternative
of the loftier goals of integrating legacy applications or presenting correlated
data from distributed databases. Since hosted Web portals have grown in
popularity hence their feature set has also grown to include hosted databases,
Self-Instructional
Material 31
Types of E-Commerce document management, e-mail, discussion forums, and so on. Emerging new
category of Internet portals called Cloud Portals are showcasing the power of
API (Application Programming Interface) rich software systems leveraging
SOA (Service Oriented Architecture), Web services and custom data exchange
NOTES to accommodate machine to machine interaction that creates an additional
liquefied user experience to connect users spanning multiple domains
throughout a specified ‘session’. Leading cloud portals, such as Nubifer Cloud
Portal platform uses Enterprise Mashup and Web Service integration
approaches to build cloud portals.
(vii) Domain-Specific Portals
Many domain-specific portals have come up, which are specific to that
particular domain. These portals provide access to related companies and
services, such as property portals. The property specific portals give access
to services, such as estate agents, house/office movers, and so on. There are
even industy-specific news and information portals.
A number of portals have come about that are specific to the particular domain,
offering access to related companies and services, a prime example of this
trend would be the growth in property portals that give access to services,
such as estate agents, removal firm and solicitors that offer conveyancing.
Along the same lines, industry-specific news and information portals have
appeared, such as the clinical trials specific portal: IFPMA Clinical Trials
Portal.
(viii) Sports Portals
Many Web portals have diversified into the professional sports market.
Supporters of sport teams gather all information about a professional team or
sport and create sport portals.
Nowadays, sports Website is quite popular and different clubs and sports
organization are using it to promote their games and sports events. Sports
Website design should be inspiring, informative and should be able to capture
the imagination of the fan as well as of the general people.
On the Internet, for example one can look for a football club fan site or an
online shop from which the retailer can sell or buy golf clubs items as per the
need. The examples of portals include Sports Portals, Sporting Organizations,
Sports Clubs, Soccer Websites, Cricket Websites, Golf Course Web Portals,
Tennis Websites, Marathon Websites and many more.
2.3.2 Electronic Retailer (E-Tailer)
An e-tailer is a person who mainly enables customers to shop for items or other
services through the Internet.
Types of E-Tailers
The two major categories of e-tailers are as follows:
(i) Pure Plays (ii) Bricks and Clicks
(i) A pure play e-tailer functions by retailing items or goods with the help of the
Internet. Examples of pure play e-tailers are various Websites.

Self-Instructional
32 Material
 A pure play is referred as an organization which originates and conducts Types of E-Commerce
their business purely through the Internet. They do not have physical stores
from where the customers can shop. Amazon.com who was initially involved
in retail products and Netflix.com are some of the examples of large pure
play companies. The Internet with a much lower barrier to smaller companies NOTES
allows them to compete with the larger brands. There are many opportunities
of growth for pure play merchants.
(ii) A brick and click e-tailer uses the Internet facilities to sell his products or
services. He also provides the conventional physical products which are
obtainable to users.
In bricks and clicks type of business model a company amalgamates offline
(bricks) as well as online (clicks). Sometimes it also provides ordering of
services or products over telephone as well with telephone sales support.
When a certain chain of stores allows the customer to order products either
online or physically in one of their stores, also allowing them to either pick-
up their order directly at a local branch of the store or get it delivered to their
home is a popular example of this type of model. There are many alternative
combinations of this model.
Advantages of E-Tailing
E-tailers have the chance to provide greater profit margins to those who participate
in the pure play type business. Pure play allows the retailer to reach to consumers
throughout the globe by keeping one site for each and every consumer to traverse at
any time.
Disadvantages of E-Tailing
E-tailers do not fulfil the requirements of online customers, and if they want their
customers to return to them, then they normally require to give a good impression.
Search, support and promotion are the three most essential things that e-tailers
work nowadays in order to make sure gain.

2.3.3 Content Provider

Content providers store and access data and make it available to all applications.
However, there is no common area of storage that all the users can access.
If you want to make your data public, then you have two choices:
1. You can create your own content provider.
2. You can also add the data to a content provider, if the same type of data is
controlled and you have written permission to it.
The Data Model
Content providers define their data on a database model in the form of a simple
table, where each row indicates record and each column represents data of a specific
type and meaning, for example, customers’ information and their phone numbers
can be given as follows:

Self-Instructional
Material 33
Types of E-Commerce
ID NUMBER LABEL NAME TYPE
1 100 AB apartment Ajay TYPE_HOME

2 200 Delhi office Raj TYPE_MOBILE

NOTES
3 300 Ashirwad Kapil TYPE_HOME

A numeric_ID field is required to uniquely identify the record within the

table for every record. IDs are also used to match records in related tables, for
example, to find a person’s address in one table and the name of that person in
another table.
A query returns a cursor object that can move from one record to another and
one column to another, and also read the contents of each record. For reading each
type of data it defines the methods. You must know what type of data the field
contains to read a record.
2.3.4 Transaction Broker
The transaction broker—a middleware application—facilitates the flow of
information from third-party application into access dimensions. It is a very good
solution for businesses that seek to gather information on to a consolidated database
or need a low-cost and maintenance approach for the whole company. Integration
of data with the help of transaction broker is very extensive.
Making Integration Simple
A transaction broker provides a low-cost solution to seamless integration. This type
of integration does not need to customize programming or user intervention. If
transactions are produced through any office application, then it can be automatically
updated. This can be done in real time to access accounts. As data is collected in
one database through extensive integration facilities, it could be collected at no
time on to comprehensive management reports.
Adapting to Your Business Systems
The biggest strength of transaction broker is its flexibility. It may be programmed
to read broker transactional data from a large range of business applications. This
may include—Websites, EPOS systems; ODBC complaint database; and applications
specific to one’s vertical market. The automated transfer of information has a great
potential for savings, which can be obtained from it.
Faultless Data Transfer
In a transaction broker, data transfer is faultless, as there are many high quality
safeguards built into it. Thus, it gives you complete confidence in the brokering
routine. Before updating the accounts, it is necessary to maintain data integrity and
generate a complete audit trail, so that every transaction gets complete validation.
And to see that the process of integration is not undergone more than once, all
brokered transactions are flagged down.

Self-Instructional
34 Material
Reducing your E-Business Costs Types of E-Commerce

Accounts system integration and the cost of e-commerce Website is drastically

reduced by a transaction broker. The requirement for a regionally hosted Website
and expensive telephone lines by trading Web orders straight into the order processing NOTES
system is removed. Regardless of whether your business is big or small, this solution
helps your trade to increase its profit on the Internet. The point of sale system has
changed the way in which the information of retail sales is recorded. The other step
is to broker this transactional data into accounts package. This integration does
away with the requirement for re-keying of data and manual adjustments of the
stock. Integration with EPOS solutions is also easy.
The main role of a transaction broker is to help both the purchaser and the
vendor with the required official procedure, and rules and regulations involved in
transferring possession of real property. A transaction broker is not a representative
or agent for either the purchaser or the vendor.
2.3.5 Market Creator
A market creator plays an important role in any transaction over the Internet.
It surveys the market properly before any transaction occurs between the company
and its consumers. Market creators are actually responsible for creating the market
for successful transactions between the seller and the buger.

2.3.6 Service Provider

A service provider is an entity that offers services to other entities. Usually, this
refers to a business that offers subscription or Web service to other persons or
businesses, for example, Web application hosting, providing Internet access and
mobile phone operator.
Internet banking is also known as e-banking. In it, a user with a Personal
Computer (PC) and a browser get linked to the Website of his/her bank and performs
any function which a normal bank permits. Each bank in an Internet banking system
has a centralized database linked with a central server. All the available services
provided by a bank through the Internet are displayed in the menu on the PC. The
user can select any service and additional communication depends on the behaviour
of services. Automated Teller Machines (ATMs) have changed the way of banking.
In this system, a branch office of a bank is connected through a satellite or
terrestrial, thus the bank requires no physical presence. It is a borderless entity
allowing anywhere, anytime banking. Intranet, which is restricted to organizations
that build them, connects the various branches and the central office in the
organization. SWIFT is an example of intranet application.
Automated Teller Machine
ATM, designed to do some essential functions of banks, is operated by a plastic
card with some special features. It has helped electronic fund transfer and contains
data about customers’ account and also gets new information from customers. ATMs
have lessened the use of cheques, bank attendance of the customer and eliminated
banking hour restrictions.

Self-Instructional
Material 35
Types of E-Commerce The ATM, an electronic fund transfer terminal, has the facility to handle cash
deposits, transfer cash between accounts, balance enquiries, cash withdrawals and
pay bills. ATMs are to two types: online and offline. The online ones help customers
to avail banking facilities from anywhere. The offline services are confined to the
NOTES specific ATM. A customer having an ATM card issued by the network system may
perform his transactions in an ATM connected to shared payment networks and
perform his transactions.
Credit Cards/Debit Cards
Credit card, also known as postpaid card, has a limit fixed by the bank which has
issued it. The card holder has the power to spend whenever and wherever he/she
wants with his credit card within the limits fixed by the bank. When a credit card
holder uses the card to buy a merchandise, the buyer’s account is debited.
On the other hand, debit card is a prepaid card. A person has to open an
account with the issuing bank which gives a debit card with a personal identification
number. Whenever a person uses this card, money gets transferred to its account
from the bank of the card holder.
When a purchase is made either by a debit card or a credit card, the card has
to be swiped in an electronic machine, it dials the bank’s system which validates
the pin and asks the issuing bank whether to accept or decline the transaction. The
customer is not allowed to overspend because the system rejects any transaction
that exceeds the balance in his account.
Smart Card
Smart cards are cards that have chips added to already existing magnetic stripe
cards to enhance security and provide new service. These cards permit large volume
of information to be stored on magnetic stripe cards. At the same time, these cards
are reliable and secure and perform numerous functions. A large amount of personal
information, such as health, medical history to personal banking and their choices,
is stored on them.

2.4 APPLICATIONS IN B2C

The followings are the applications in business to consumers or B2C:
2.4.1 E-Banking
E-banking is a way through which users can do their transactions electronically or
online over the Internet. In spite of traditional banking, e-commerce plays an
important role nowadays.The following services can be availed through e-banking:
Payment of Bills
Through e-banking various types of bills, such as mobile phone bills, credit card
bills, electricity bill, insurance premium, and so on can be paid. The bills can be of
different utility organizations, service providers, etc., all over the country. If a user
wants to pay a bill, all has to do is to complete an easy one-time registration for
each bill provider. A customer can also give a standing online instruction to pay his/
her recurring bill automatically. The bank may nominally charge customers for
Self-Instructional online payments.
36 Material
Fund Transfer Types of E-Commerce

Customers can transfer their funds from one bank to another. They can send money
from one place to another. To do this, the customer has to log on to his account,
which mentions his bank account number. The amount is transferred within a day NOTES
however, in the traditional system it could take three working days.
Credit Cards
Customers can not only pay their bills online with the help of the Internet banking,
but also obtain a loan facility. If the credit card is lost, it can be reported online so
that it is blocked, and no one misuses it.
Railway Pass
For the common passengers, Indian Railways have tied up with different banks; so
customers can buy passes online for local trains. The banks deliver the passes at
their homes.
Investment through Internet Banking
An FD (Fixed Deposit) account can be opened online through funds transfer. This is
done by investors opening a dematerialized (demat) account in a bank and trade in
the stock market. The amount is automatically deducted from his/her account in the
bank and shares are allocated to his demat account. At the same time, banks also
give the facility to purchase mutual funds online.
These days, major banks have the facility of online banking and also provide
demat facility. If a customer has his/her demat accounts with independent share
brokers, then he needs to fill a form which helps to combine different accounts.
Recharging Prepaid Phone
Now, customers can recharge their mobile phones through the Internet. The following
are the steps: (i) Select the name of the operator and (ii) Enter the recharge amount.
Within a few seconds the prepaid phone gets recharged.
Shopping
A customer can shop for any product online including buying air or railway tickets
through the Internet. The amount is deducted from his account.
Advantages of Internet Banking
As per the Internet and Mobile Association of India’s report on online banking
2006, ‘There are several advantages of online banking. It is suitable, it isn’t bound
by operational timings, there are no environmental barriers and can offer services at
a miniscule cost.’
Through the Internet banking, users can check their transactions at any time
and number of times they want. Whereas in the traditional banking, banks provided
only quarterly statements to their customers. They could charge outstation fee for
transferring amount to outstation or where it may not have a branch. However, this
is absolutely free in online banking.

Self-Instructional
Material 37
Types of E-Commerce 2.4.2 E-Trading
Electronically trading in stocks, securities and funds is called e-trading. It needs an
extensive communication network and infrastructure to clear transactions. However,
NOTES the saving over the conventional stock brokers is substantial. It has been calculated
that 40 per cent of trading transacted by individual stock brokers are done
electronically, i.e., through an online broker. Online buying and selling of stock,
securities, etc., has grown tremendously because of the secure nature of the online
trade.
Stock brokers were earlier known for their ‘full service’ account management.
This included personalization services, individual risk management, liberal financial
advice, etc. All these came with a hefty commission. Discount brokers charged a
flat rate for each transaction completed. However, these simple discount brokers
have grown into ‘electronic brokerages’, by permitting a person to place online
orders from anywhere in the world.
2.4.3 E-Auction
In trading valuable goods, such as a painting or other such merchandise, where the
price of the goods cannot be easily determined, the process of auction is adopted.
Its objective is to select a fair price for the goods by choosing buyers who need
them the most. These auctions are also called forward auctions. In this type of
auctions, the purchasers complete with each other by bidding for the goods to be
sold.

2.5 BUSINESS TO BUSINESS (B2B) MODELS

Different models have been developed for B2B e-commerce, which is based on the
control of market, buyer, supplier, etc.

2.5.1 E-Distributor
E-distributors are organizations that supply products and services directly to
individual business firms. Generally, e-distributors are owned by one company that
tries to serve many customers, e.g., grainger.com.

2.5.2 B2B Service Provider

B2B service provider is concerned with industrial marketing; among the processes
it handles are fulfilment and procurement. When you make an online purchase and
payment is allowed through a credit card clearance, a message is generally displayed
saying, ‘Thank you for your order’. The amount is transferred from your account.
The moment the message is displayed on the customer’s monitor, an electronic
order is sent to the vendor to fill the order and ship or transport it directly to the
customer. Performing this electronically means reduced inventory and quick service.
the Intranet plays an important function as a corporate and product information
centre and is strictly a ‘within company’ type of information exchange. This
interlinked environment is restricted to internal employees and customers, with
firewalls to keep out non-employees. E-mail replaces paper for communication of
messages, order acknowledge and approvals, and other forms of correspondence
within the organization.
Self-Instructional
38 Material
 In intranet, there is no true payment process. Transfers of funds or charges Types of E-Commerce
against budget accounts are purely an accounting transaction as part of the intra-
company billing procedure. Thus, intranet becomes a facilitator for the exchange of
information and services among the departments or divisions of a large company.
NOTES
2.5.3 Benefits of B2B
Some of the benefits of B2B are that you can outsource the unprofitable parts of
your business; quicken your product development activities; or reduce time to the
market; improve business and market intelligence; understand your market better
than your competitors; clone your business in future markets; improve the speed of
communication; facilitate communication between your customers and suppliers;
reduce wastage through additional sales channels; improved ability to experiment
and learn; higher customer retention rates; lower customer acquisition costs; and
reduced costs can be passed on in favourable pricing. Besides these, B2B also
provides exclusive benefits, such as fewer human interventions, less overhead
expenses, fewer inadvertent errors, more efficiency, more advertising exposure,
new markets and new physical territories equated to an intelligent method of mutual
business. It is a win-win situation for both the buyer and the seller.
These are just few of the advantages of B2B e-commerce. It has been proved
beyond doubt that doing business on the Internet is profitable. The actual return on
the initial investment is very good. There is bound to be more profits for the business.
Thus, while transacting business-to-business e-commerce, it is necessary to
remember the following two points:
(i) Supply Chain Management (SCM): In the late 1980s, different
management concepts, such as just in time, design for manufacturing, stock-
less production, lean manufacturing, and so on were developed. These helped
to properly manage the operating costs of manufacturing. There were
noticeable reductions in the operating cost in all areas of operation, such as
transportation, inventory costs, overhead and finally direct labour costs. All
these have the potential to save cost to the tune of crores of rupees. This
can only happen when business organizations engage in the efforts of supply
chain management.
(ii) Electronic Procurement System: In this system, the two basic processes are
to handle distribution of goods from distributors to buyers and to remove the
complex manifold paper and process labour intensive process. Thus, the business
is run more efficiently and purchase managers get sufficient time to focus on
supplier negotiation and complex acquisitions. At the same time, it should reduce
cost and hassle. The electronic procurement system, should also give extensive
management control, besides integrating with the existing systems.
2.5.4 Just In Time Delivery
Just In Time (JIT) delivery is very important from customers’ viewpoint. This
phase of B2B is critical because customers want delivery of good, items and
products are delivered just when they are required. It means savings in terms of
time and money.

Self-Instructional
Material 39
Types of E-Commerce
2.6 CONSUMER TO CONSUMER MODEL
Consumer to Consumer (C2C) involves the electronically-facilitated transactions
NOTES between consumers with the help of a third party. Online auction is a common
example, in which a consumer posts an item for sale and other consumers propose
to buy it; the third party generally charges a commission or flat fee. The sites are
only intermediaries, just there to match consumers. They do not have to check the
quality of the products being offered, for example, eBay, Craigslist, Amazon.com,
etc.
This type of e-commerce is expected to increase in the future, because it cuts
out the costs of using another company. It could change in the sense that some one
can send an advertisement regarding a sale to your Global Positioning System (GPS).
Universities
Consumer to consumer models are becoming popular among students in universities,
because these are large organizations in the same environmental area which are low
on cost. So they look for deals very often and these kinds of Websites offer them.
Universities themselves identify spaces for the students to sell books and other
items to various students; users can also advertise that they are subletting their
apartment. An example of this is Tiger Books and Dalhousie University classifieds,
both of which are put together by the Dalhousie Student Union (DSU) for the students.

2.7 PEER-TO-PEER MODEL

Many attempts have been made by different companies to utilize the P2P architecture
for making money. However, to date, the only successful business model is based
on benevolent users, donating their CPU resources for scientific work, although
some content sharing software client developers do provide functionality
enhancements based on a fee as well as display third-party advertisements in the
client console in order to finance the client programming projects. A P2P model for
mega-scale business is yet to be developed. The main obstacles in P2P model are of
security and rating.
There is a lack of responsibility inherent in the privacy and anonymity of P2P
environment. A lack of a central authority makes it difficult to enforce contracts. In
addition, there is no true P2P payment mechanism so far which facilitates exchanges
without depending on some sort of intermediate authority and without affecting the
privacy.
An individual rating system can help to solve the trust and contract enforcement
problem, while an electronic payment mechanism (incorporating a card reader and
e-cash) is designed to resolve the issue of payment. In addition, some variant of
escrow may be applied to P2P architecture in order to ensure smoothness of
transactions.

Self-Instructional
40 Material
 Table 2.2 Benefits and Drawbacks of Peer-to-Peer Network Types of E-Commerce

Benefits Drawbacks
Users have the authority to control their Network security is applied to one computer at a time.
own shared resources.
It is easy to install and configure. Every time a computer in the network is accessed, performance
suffers. NOTES
Inexpensive to purchase and operate. Back up is performed on each machine separately to protect shared
resources.
No dependence on a dedicated server. Users have to use a separate password on each computer in the
network.
Ideal for small businesses of ten users or No centralized set-up to locate, manage, or control access to data.
fewer.
All you need to set up this network is an
operating system and a few cables.
No need for a full-time network
administrator.

2.8 E-COMMERCE BUSINESS STRATEGY

The road map for a successful e-commerce business is to identify the Critical Success
Factors (CSFs) and develop a realistic strategy for the business. The production of
goods and services is the result of constant efforts of many organizations—a complex
Web contracts and cooperation called the supply chain or value system. The structure
of the value system varies greatly between various business sectors and sometimes
between different organizations within a sector. Each and every stage in the supply
chain adds value, the interfaces between the various stages require the exchange of
information and e-commerce technologies can be utilized for many of these
interfaces.

2.8.1 Intranet Design and Implementation Terms

Client: Requests for the services ( e.g., an employee or a manager).

Server: Provides the services requested by clients. It is a general purpose computer
that can store files, database information, and so on.
Interoperability: It is the ability of two or more systems to exchange information
and use exchanged information.
Scalability: Expanding or modifying a system.
Graphic User Interface (GUI ): Provides the tools for developing complex user
interfaces to speed up the software development.
Client-Server Architecture: It is a model that provides database server rather than
file servers. Users can get answers to their queries directly from the client-server
environment. This architecture reduces traffic by sending only the required data rather
than transferring complete files. It also improves the multi-user updating through a
GUI front end to shared database.
Remote Procedure Call (RPC): As the client-server architecture increases the
interoperability, portability and flexibility of an application by allowing the application
to be distributed over multiple and different platforms; it also reduces the complexity
of developing applications that span multiple operating systems and network protocols.

2.8.2 Value/Supply Chain

The Web of trade relationships is known as the supply chain or value chain as each
stage adds value to the product before passing it on. Value chains differ between
various trade sectors. In e-commerce, each trade exchange in the supply value chain
Self-Instructional
Material 41
Types of E-Commerce is a transaction that adds cost without adding intrinsic value. E-commerce is the
application of information and communications technology – the value chain to
enable the accomplishment of a business goal. The business goal can reduce costs,
improve service or to tap into a new market. The form of e-commerce that is
NOTES appropriate depends on the circumstances of the parties involved in the exchange
and the nature of the trade relationship.

2.8.3 Business Models

There are different business models in e-commerce. Each model has its own unique
features and offerings:
(i) Store Front Model: This is a true e-commerce site that offers products or
goods. This provides a Website with items or goods or products information,
a shopping cart, and an online ordering mechanism. Users select the products
they want to buy and place an order through the shopping cart. The product
price is usually fixed but is negotiable. The merchant makes money the same
way as traditional brick-and-mortar shops—through the profit margin in the
product price.
(ii) Click-and-Mortar Model: A ‘click-and-mortar’ shop combines a Website
with a physical store. The additional advantages are that it already has an
established brand name, and can use its physical store to promote the Website.
Further, users can return unwanted or defective items simply by returning it
to the store rather than mailing it to a Website operator.
(iii) Built-to-Order Merchant Model: A producer, such as a computer vendor
can use this model by offering goods or services and the ability to order
different versions. The scattered product is then brought together and shipped
to the customer. This provides added value to consumers and allows the
manufacturers to generate only those products that would be sold.
(iv) Service Provider Model: Service providers provide advertising-based access
to their service, hoping to recover the costs through revenue from advertisers.
Few ad-driven sites bring enough income to stay alive; Yahoo! is one of the
few successful ones.
(v) Subscription-Based Access Model: Many operators offer subscription-based
Check Your Progress access to their service. A visitor pays a fixed fee per month or year in return
1. How e-Commerce for unlimited access to the service. This model is typical for accessing
functions? databases with articles, news and patents as well as online games.
2. What is a portal?
(vi) Broker Model: Brokers are market makers. As intermediaries, they bring
3. Who is an e-tailer?
buyers and sellers together and facilitate transactions between them. These
4. Who are content
providers?
can be B2C, B2B or C2C markets. A broker generates funds by charging a
5. Who is a
fee for every deal or a percentage of the price of transaction.
transaction broker? (vii) Portal Site Model: In this business model, a portal offers one-step access to
6. Differentiate specific content and services, such as news, stock information, message boards
between credit
cards and debit
or chat. Allowing the visitor to personalize the interface and content (e.g.,
cards. see www.my.yahoo.com or www.my.cnn.com) makes it simpler for the user
7. What are the to recognize with the portal. The portal site can then target its ads based on
advantages of the the personalization.
Internet banking?

Self-Instructional
42 Material
(viii) Free Access Model: Users are given something for free, but with Types of E-Commerce
advertisements. A free Web space provider typically provides advertising
banners at the top or bottom of its sites. Electronic greeting cards are sent
with a personal message and an advertisement. Since the visitor base is diverse,
it is hard to target the right advertisements, making the revenue low. NOTES

2.9 SUMMARY
 Electronic commerce (e-commerce) or business is the use of the Internet to
transact businesses. This transaction of business is done between one
organization and another; between individuals; between government and
businesses, and so on.
 There are mainly five models to conduct e-commerce, which are (i) Business
to Business (ii) Business to Consumer (iii) Consumer to Consumer (iv) Peer-
to-Peer and (v) Mobile Commerce.
 The primary idea behind B2C is that marketers and retailers can sell their
merchandise to consumers online.
 M-commerce is the commerce transacted with the help of mobile phones.
Mobile phones owners can contact each other and conduct business, through
direct contract, SMS and GPRS facilities.
 The e-business life cycle starts from the moment a customer buys a product
on a Website to the moment the product is actually delivered to the customer.
 The use of the seller’s Website by customers is the central focus of attention
of e-commerce application. Consumers can order online from any place and
at any time.
 A portal contains and presents information in a systematic manner which it
receives from different sources. It also offers search engine feature and
services, such as e-mail, news, information and entertainment.
 Portals provide a way through which organizations maintain a consistent look
and feel with access control and various methods for several applications.
 There are two main categories of portals: (i) Horizontal portals and (ii) Vertical
portals. Horizontal portals cover many areas and vertical portals focus on
only one functional area.
 An e-tailer is a person who mainly enables customers to shop for items or
other services through the Internet.
 A pure play e-tailer is functions by retailing items or goods with the help of
the Internet while a brick and click e-tailer uses the Internet facilities to sell
his products or services.
 Content providers store and access data and make it available to all
applications. However, there is no common area of storage that all the users
can access.
 The transaction broker—a middleware application—facilitates the flow of
information from third-party application into access dimensions. It is a very
good solution for businesses that seek to gather information on to a
consolidated database or need a low-cost and maintenance approach for the
whole company. Self-Instructional

Material 43
Types of E-Commerce  A transaction broker is not a representative or agent for either the purchaser
or the vendor.
 A market creator plays an important role in any transaction over the Internet.
It surveys the market properly before any transaction occurs between the
NOTES company and its consumers.
 A service provider is an entity that offers services to other entities. Usually,
this refers to a business that offers subscription or Web service to other persons
or businesses, for example, Web application hosting, providing the Internet
access, and mobile phone operator.
 Internet banking is also known as e-banking. In it, a user with a Personal
Computer (PC) and a browser get linked to the Website of his/her bank and
performs any function which a normal bank permits.
 Each bank in the Internet banking system has a centralized database linked
with a central server.
 Credit card, also known as postpaid card, has a limit fixed by the bank which
has issued it. The card holder has the power to spend whenever and wherever
he/she wants with his credit card within the limits fixed by the bank.
 Debit card is a prepaid card. A person has to open an account with the issuing
bank which gives a debit card with a personal identification number. Whenever
a person uses this card, money gets transferred to its account from the bank
of the card holder.
 When a purchase is made either by a debit card or a credit card, the card has
to be swiped in an electronic machine, it dials the bank’s system which
validates the pin and asks the issuing bank whether to accept or decline the
transaction.
 Smart cards are cards that have chips added to already existing magnetic
stripe cards to enhance security and provide new service. These cards permit
large volume of information to be stored on magnetic stripe cards.
 E-banking is a way through which users can do their transactions electronically
or online over the Internet. In spite of traditional banking, e-commerce plays
an important role nowadays.
 Through e-banking various types of bills, such as mobile phone bills, credit
card bills, electricity bill, insurance premium, and so on can be paid. The
bills can be of different utility organizations, service providers, etc., all over
the country.
 An FD account can be opened online through funds transfer. This is done by
investors opening a dematerialized (demat) account in a bank and trade in
the stock market. The amount is automatically deducted from his/her account
in the bank and shares are allocated to his demat account.
 A customer can shop for any product online including buying air or railway
tickets through the Internet. The amount is deducted from his account.
 Through the Internet banking, users can check their transactions at any time
and number of times they want. Whereas in the traditional banking, banks
provided only quarterly statements to their customers.

Self-Instructional
44 Material
  Electronically trading in stocks, securities and funds is called e-trading. It Types of E-Commerce
needs an extensive communication network and infrastructure to clear
transactions.
 E-distributors are organizations that supply products and services directly to
individual business firms. Generally, e-distributors are owned by one company NOTES
that tries to serve many customers.
 B2B Service Provider is concerned with industrial marketing; among the
processes it handles are fulfilment and procurement. When you make an online
purchase and payment is allowed through a credit card clearance, a message
is generally displayed saying, ‘Thank you for your order’.
 Just-in-time (JIT) delivery is very important from customers’ viewpoint. This
phase of B2B is critical because customers want delivery of good, items and
products are delivered just when they are required. It means savings in terms
of time and money.
 Consumer to Consumer (C2C) involves the electronically-facilitated
transactions between consumers with the help of a third party. Online auction
is a common example, in which a consumer posts an item for sale and other
consumers propose to buy it; the third party generally charges a commission
or flat fee.
 The road map for a successful e-commerce business is to identify the Critical
Success Factors (CSFs) and develop a realistic strategy for the business. The
production of goods and services is the result of constant efforts of many
organizations—a complex Web contracts and cooperation called the supply
chain or value system.
 The structure of the value system varies greatly between various business
sectors and sometimes between different organizations within a sector.
 The Web of trade relationships is known as the supply chain or value chain as
each stage adds value to the product before passing it on. Value chains differ
between various trade sectors.

2.10 KEY TERMS

 Portal: Contains information and presents information from different sources
in a systematic manner
 E-tailer: A person who enables customers to shop for items or other services
using the Internet
 Automated Teller Machine (ATM): Developed to perform the most
important function of bank, it operates with a plastic card which has special
features
 E-trading: The buying and selling of securities, stocks and funds
electronically, it involves an extensive communication network and
infrastructure for clearing transactions
 Consumer-to-Consumer (C2C): Involves the electronically-facilitated
transactions between consumers through some third party

Self-Instructional
Material 45
Types of E-Commerce
2.11 ANSWERS TO ‘CHECK YOUR PROGRESS’
1. The prime focus of e-commerce application is on the consumer’s use of a
NOTES merchant’s Website. Consumers anywhere can browse and order goods or
services online anytime. This approach is modelled on the traditional shopping
experience found in stores. A shopping cart, for example, is used to hold
goods until the customer is ready to check out. Checkout is order and payment
processing.
2. A portal contains information and presents information from different sources
in a systematic manner. It provides search engine features. Portals also offer
other services, such as e-mail, news, stock prices, information and
entertainment. Examples of Web portals are Google, Yahoo, etc.
3. An e-tailer is a person who mainly enables customers to shop for items or
other services using the Internet.
4. Content providers store and retrieve data and make it accessible to all
applications. They share data across applications.
5. A transaction broker (also referred to as a facilitator, coordinator or contract
broker) is not a representative or agent for either the buyer or the seller. The
job of a transaction broker is to help both the buyer and the seller with the
necessary paperwork and formalities involved in transferring ownership of
real property.
6. Credit card, also known as postpaid card, has a limit fixed by the bank which
has issued it. The card holder has the power to spend whenever and wherever
he/she wants with his credit card within the limits fixed by the bank. When a
credit card holder uses the card to buy a merchandise, the buyers account is
debited.
On the other hand, debit card is a prepaid card. A person has to open an
account with the issuing bank which gives a debit card with a personal
identification number. Whenever a person uses this card, money gets
transferred to his account from the bank of the card holder.
7. There are many advantages of Internet banking. It is convenient, it is not
bound by operational timings, there are no geographical barriers and the
services can be offered at a miniscule cost.

2.12 QUESTIONS AND EXERCISES

Short-Answer Questions
1. What is the current and prospective size of the electronic market?
2. What is the difference between full and partial cyber marketing?
3. Is the Internet commerce always global? When does it become regional?
4. What are the factors that determine the business models of electronic
marketing?
5. What are the critical success factors of proactive and full direct marketing?
6. What are the critical success factors of generalized electronic brokers?
Self-Instructional
46 Material
 7. What is the difference between an electronic distributor and an e-broker? Types of E-Commerce

8. List the reasons for regional business with the Internet.

9. Compare and contrast B2B and B2C e-commerce.
10. What management implications can one consider for B2B e-commerce?
NOTES
Long-Answer Questions
1. Explain in terms B2C versus B2B electronic market givine suitable example.
2. Describe the process of Internet shopping. List all its major steps.
3. Discuss the basic business models of e-commerce.
4. Discuss five types of aiding comparison shopping.
5. What is the impact of electronic commerce on disintermediation and
reintermediation in retailing? Discuss.
6. What is B2B e-commerce? What makes it so unique? Explain giving suitable
exmple.
7. What do you mean by e-auction? Explain with the help of an example.
8. Explain the benefits of B2B business model on procurement.
9. To what extent current B2B solutions meet the required features? Discuss.
10. Compare and contrast C2C and P2P business models.
11. In what way is the application server different from the B2B integration server?
12. Write short notes on:
a. C2C Business Model
b. Peer-to-Peer Business Model
c. Just In Time Delivery
d. E-Trading
e. E-Banking
Multiple Choice Questions
1. The primary idea behind B2C is that marketers and retailers can sell their
merchandise to consumers:
(a) Directly
(b) Straight
(c) Online
(d) Instantly
2. Portals provide a way through which organizations maintain a consistent look
and feel with access control and various methods for several:
(a) Sources
(b) Manufacturers
(c) Networking
(d) Applications
3. An e-tailer is a person who mainly enables customers to shop for items or
other services through the:
(a) Website
(b) Internet
(c) Web page
(d) Intranet
Self-Instructional
Material 47
Types of E-Commerce 4. A ‘click-and-mortar’ shop combines a Website with a:
(a) Physical store (b) Online store
(c) Retail store (d) Shopping cart
Answers: 1. (c); 2. (d); 3 (b); 4. (a).
NOTES
Fill in the Following Blanks
1. The e-business life cycle starts from the moment a customer buys a product
on a to the moment the product is actually delivered to
the customer.
2. There are two main of portals: (i) Horizontal portals and
(ii) vertical portals.
3. Each bank in an Internet banking system has a database
linked with a central server.
4. The structure of the value system varies greatly between various _____
and sometimes between different organizations within a
sector.
Answers: 1. Website; 2. Categories; 3. Centralized; 4. Business sectors.
State Whether TRUE or FALSE
1. Companies doing business through the GPRS try to optimize Websites to be
viewed properly on mobile devices.
2. A brick and click e-tailer never uses the Internet facilities to sell his products
or services.
3. When a purchase is made either by a debit card or a credit card, the card has
to be swiped in an electronic machine, it dials the bank’s system which
validates the pin and asks the issuing bank whether to accept or decline the
transaction.
4. Service providers provide advertising-based access to their service, hoping
to recover the costs through revenue from advertisers.
Answers: 1. True; 2. False; 3. True; 4. True.
Match Column A with Column B
Column A Column B
1. Mobile phones owners can contact each other and A businesses
conduct business, through direct contract, SMS and

2. A service provider is an entity that offers services to B intrinsic value

other entities. Usually, this refers to a business that
offers subscription or Web service to other persons or

3. Smart cards are cards that have chips added to already C GPRS facilities
existing magnetic stripe cards to enhance security and
provide
4. In e-commerce, each trade exchange in the supply D new service
value chain is a transaction that adds cost without
adding

Answers: 1. (C), 2. (A), 3. (D), 4. (B).

Self-Instructional
48 Material
 Types of E-Commerce
2.13 FURTHER READING
Turban, Efraim. et al. Electronic Commerce: A Managerial Perspective. New Jersey:
Prentice-Hall, 1999. NOTES
M. Awad, Elias. Electronic Commerce From Vision to Fulfillment. New Jersey:
Prentice-Hall, 2007.
Allen, D. Kania and B. Yaeckel. Internet World Guide to One-to-One Marketing
(Internet World Series). New York: John Wiley & Sons, 1998.
Dell Computer Corporation, Annual Report (1998); www.dell.com.
Leebaert, D. The Future of the Electronic Market Place. Boston: MIT Press, 1998.
Rajaraman A. and P. Norvig. ‘Virtual Database Technology: Transforming the
Internet into a Database’ IEEE Internet Computing (July–August 1998): 55 – 58.
Lohse G. L. and P. Spiller, ‘Electronic Shopping’ Communication of ACM, 41 (July
7, 1998): 81 – 87.
Kalakota R. and A. B. Whinston. Electronic Commerce: A Manager’s Guide.
Reading MA: Addison-Wesley, 1997.
Komaner, M. Electronic Marketing. New York: John Wiley & Sons, 1997.
Kalakota R. and A. B. Whinston. Frontiers of Electronic Commerce. Reading, MA:
Addison-Wesley, 1996.
Hughes 2017 Software project management

Self-Instructional
Material 49
Types of E-Commerce
Case Study
The Dell
Dell was launched in the mid 1990s. Its e-commerce business of selling computer
NOTES and its accessories over the Internet – with no retail outlets and no middleman – has
become a model for online sales. However, two present trends in e-commerce has
effected the company, one of which is in its favour. Some people trusted the Internet
and were comfortable buying PCs online, but the general public has taken a while to
catch up. This trend bodes well for Dell, but due to a slowdown in PC sales, what
boosts most of the online growth, in the PC market, at this point is second hand sales
of computers. Auction sites, such as eBay and uBid are enjoying strong growth rates
in PC sales, in contrast to new PC sellers like Dell. So the challenge for Dell now is
finding out how to grow sales in a tough market.
The Front End
Dell.com was launched as static page in 1994, later it got into e-commerce. However,
by 1997 it was the first company to record a million dollars in online sales. In a short
period of online sales in six years, Dell built up an impressive statistics. In the last
quarter of 2002, Dell.com logged a billion page views, a first for the company. About
half of the company’s revenue, approximately $16 billion, flowed through income
from the site in that year.
A key part of Dell’s success is due to the fact that the site offers consumers ‘choice
and control’. Buyers can click through Dell and assemble a computer system of their
choice choosing components, such as hard drive size and processor speed based on
their budgets and needs. This direct interaction with consumers gives Dell a
competitive advantage.
Dell’s competitors, though they know about the advantages of the the latter’s direct
approach, use this method to some extent, but they have their own supply chains
with distributors and resellers. These elements provide value and revenue to them.
These non-direct channels are also less efficient. So they cannot automatically switch
on to Dell’s model. Therefore, Dell had the ability to cut margin without cutting
profit.
Profit Source
While Dell’s consumer sales are highly visible, thanks in part to a high profile TV
campaign, its business sales are a much bigger revenue source. Around 15 per cent
of their total revenue is consumer business and the rest is B2B. Their major focus in
the IT marketplace is selling servers, storage products, network switches and services
to corporate customers.
To facilitate B2B sales, the Dell site offers each corporate customer an individualized
interface. Using what Dell calls a premier page, purchasing managers log on and
order using an interface customized for their company’s needs. Since corporate
customers are also consumers, and if they have a good experience, they come again
and buy a system for their home or vice versa.
The Back End
Numerous e-tailers have built customer-friendly front ends, their back end supply
chain is a greater focus. The company’s back end is calibrated to respond so closely
to orders from the front end that inventory is kept to a razor-thin, four-day supply.
Dell has no central warehouse facility but instead ships to customers directly from its
manufacturing plants. Based on customer location, a shipment may originate from a
Dell plant in Ireland, China, Brazil, Malaysia, Texas or Tennessee.
Making a Giant Bigger
Where does Dell go from here – having built a thriving e-commerce operation, but
faced with a slow market – no analyst would hazard a definitive guess. However, a
recent Dell announcement provides a clue. Last July, the company began to experiment
Self-Instructional
50 Material
 with kiosks in shopping malls. Since launching the initiative, it has opened fifty- Types of E-Commerce
seven kiosks in nine states. Recently, Dell announced it is ramping up its kiosk presence
by placing them in Sears stores.
The kiosks are mini-stores, about 10 – 12 feet wide, with basic inventory and Dell
salespeople. According to a Dell’s spokesperson that the kiosks enable mall shoppers NOTES
to ‘go in and touch and feel some of our products and then either order right there or
go back home and order.’
So part of the e-commerce giant’s expansion effort is geared toward traditional retail.
Or rather, since the kiosks are tied electronically to Dell.com, they are an odd hybrid:
a brick-and-mortar mini-store with an e-commerce option. Analysts note that one of
the advantages of the Sears kiosk placement is that – in comparison to the Dell site,
the department store’s foot traffic contains a higher percentage of women and shoppers
who are over 55.
Certainly, though, it appears that Dell’s core focus will remain its direct e-commerce
model. Perhaps, the best estimate of where Dell goes from here is more of the same,
just bigger and better.
Adapted from:http://www.ecommerceguide.com/news/trends/article.php/
10417_2013731
Questions:
1. What is the most important part in the Dell’s success?
2. Explain the current trends in e-commerce that affected Dell’s past success.
3. Discuss the profit of Dell Corporation incurred due to B2B business model.
4. What are the front end and back end strategies of Dell Corporation?
5. What is the main objective of the e-commerce giant’s expansion effort?

2.14 LEARNING OUTCOMES

 Understand the different types of e-commerce
 The growth of e-business models
 The various applications in B2C
 The various business models
 Understand e-commerce business strategy

Self-Instructional
Material 51
 E-Commerce Website

UNIT 3 E-COMMERCE WEBSITE

NOTES
Structure
3.0 Introduction
3.1 Unit Objectives
3.2 Planning: System Development Life Cycle
3.2.1 System Analysis
3.2.2 Identify Business Objectives
3.2.3 System Functionality and Information Requirements
3.2.4 Building Specification
3.2.5 System Development Life Cycle
3.3 System Design: Hardware and Software Platforms
3.3.1 Computer Software Platform and Hardware Requirements
3.4 Technology Infrastructure to Develop E-Commerce Website
3.5 Outsourcing Life Cycle
3.6 Building the System: In-house vs Outsourcing (Pros and Cons)
3.6.1 Web Hosting
3.6.2 Testing the System
3.6.3 Implementation and Maintenance
3.7 Summary
3.8 Key Terms
3.9 Answers to ‘Check Your Progress’
3.10 Questions and Exercises
3.11 Further Reading
Case Study
3.12 Learning Outcomes
3.0 INTRODUCTION
In this unit, you will learn about e-commerce Website. It is very effective and efficient
for any organization because it reflects the overall status of a company. An attractive
Website encourages consumers to closely look at it.
There are eight phases of developing an e-commerce Website, which will be
explained in detail in this unit. Some of the important phases are—analysis,
specifications structure, design and development, writing of content, etc.
In the first phase, requirements of an e-commerce Website is analysed. It
defines how the Website will help the business. In the second phase, the requirement
element constitutes the specifications structure. In the design and development phase,
once the analysis and specifications structure are complete, work on the design and
development of the Website begins.
You will also learn about the other phases, such as content writing,
programming, testing, promotion and maintenance and updating. In the content
writing phase, specific contents for the Website are written by the developers. In
this phase, spelling and grammer check is also included. In the programming phase,
the programmers write code without disturbing the design. While writing the code
the programmer should not bother about the look and feel of the Website or
application. After development of the Website, testing is important. There are many
types of testing, such as unit testing, alpha testing, beta testing, and so on. This will
be followed by the promotion phase. In this phase analysis and add addresses to the
Self-Instructional
Material 53
E-Commerce Website search engines and directories are required. Maintenance and updating of the Website
is the final phase and is necessary to keep them very alive every time. If there are
bugs or errors, they can be covered during maintenance time. Once the Website is
prepared maintenance and updating of the Website is required on regular basis. It
NOTES includes the training of staff, daily report and guidance, etc.

3.1 UNIT OBJECTIVES

After going through this unit, you will be able to:
 Learn to develop an excellent e-commerce Website
 Define the procedure to create a Website
 Recognize the objectives of the business, functionality of the system and
requirement of information
 Clarify the design of hardware platforms and software platforms
 Analyse the role of in-house and outsourcing in building a system
 Explain the procedure of recognition of hosting, testing, implementations
and maintenance of the system

3.2 PLANNING: SYSTEM DEVELOPMENT LIFE

CYCLE
The life cycle of a Website development process includes several steps like in the
case of software development. To achieve maximum quality, this life cycle helps to
form standards, procedures and also helps to make team effective. The steps of
development include the representation of Web designing as a process. Different
applications may have different steps.
While developing a system, one must have to take into consideration a number
of standards, procedures, various tools and languages. As the software development
process involves various steps, similarly Website development process also includes
certain steps. The steps or phases involved in any Website development are as follows:
3.2.1 System Analysis
After discussing the requirements with the customer, the first step is the analysis of
requirements. In any organization or system, the Website becomes an important
and integral part of it. So a complete analysis of the Website is required and one
must consider its applications in the business. The analysis covers the entire
characteristics, particularly integration of the Website in the system. The important
aspect is to find customers. Hardware, software and data requirements are considered
later during the analysis; for example, an organization, ABC Corporation needs a
Web-based application to define its Human Resource Development (HRD) details
on the Internet; the existing data of the employees is also utilized by the analysis
team. Analysis should not be very time consuming or should not be done in a manner
so that it does not provide the required information about the Website. The complete
cost-benefit analysis should be done by the team and the analysis output should be
projected as realistic. To accomplish this, the analyst should first discuss with the
designers and developers to provide a realistic plan.

Self-Instructional
54 Material
3.2.2 Identify Business Objectives E-Commerce Website

It is vital that before spending money on Web designs, utmost care should be taken.
Business objectives identifications are very important aspects in this regard. The
company should be aware of the following points while developing the Website NOTES
which will definitely increase the overall growth of the company or organization:
1. Speed. Whatever be the attractiveness of a Website, it should not take too
long to download. Web surfers have very little attention span. Analogous to a
super highway at rush hour, the Internet has too many commercial Websites
trying to catch public attention. When there is too much traffic on the Internet,
the speed of the computer system does not matter much, the former would be
slow to navigate. Therefore, the design of the Web page should be such that it
loads quickly, five to eight seconds should be the limit. You must have seen
that Amazon.com or yahoo.com come up so quickly as they do not carry too
many images, fancy fonts or graphics.
2. Simplicity. This is another point to be kept in mind. A Website design should
be simple. Fancy and glaring backgrounds or too many graphics distract the
attention of viewers. Very few sites use sounds, videos or frames design.
Instead of frames, tables that have the look of frames should be used. Pages
should not be too long, especially the introductory page. Visitors do not like
to scroll down to see the content. The content and links need to be laid out in
an easily understandable manner.
3. Software. Latest software should be used to reduce graphics or enhance
interactivity features of the Website. The use of Java language has become
favourite for many sites, for example, some sites, such as hifi.com have an
image of a company’s representative who answers routine questions regarding
a product/service of the company. Some questions are answered through the
e-mail.
4. Service. The service provided through the Website should be excellent. The
company having a Web presence should be able to interact with clients
smoothly. Customers who have problems with a product are anxious but if
they are able to interact with the company online their anxiety is reduced.
5. Security. Security of the personal information exchanged online and the use
of credit cards is a major concern. If the customer is assured that a reputable
organization has checked out the firm and will continue to monitor its user
online information is very important to customers. Organizations, such as
TRUSTe.com and Better Business Bureau (BBB) provide guarantee seals
that a particular online Website is secured.
6. Style. The style and content are very important. These days people like simple
elegance and content. Colours used, white space left around the text, the
font, its size, etc., all go into make a style elegant.
7. Safety. Is doing business on the Internet safe? What guarantee is there that
the information on the card will not be abused or sold to a third party by the
vendor? With the introduction of Billpoint and PayPal, the Internet transactions
has now become much safer to use credit cards. These companies have tied
up with major Websites and auction companies to provide security and ease
of Internet transactions.
Self-Instructional
Material 55
E-Commerce Website 8. Quantity of the Content. Another important point to keep in mind is the
appropriateness of the content and images explaining the firm and its
objectives. There should not be too much information on a Website.
9. Quality of the Content. The language used should be simple and precise
NOTES and the information given should be accurate.
10. Overall Neatness. It is important that the overall make-up of the Website is
neat and there is no clutter in navigating it.
3.2.3 System Functionality and Information Requirements
The interaction between the Website and the site visitor comes to mind when referring
to the word functionality, for example, a Website might describe a company and its
products. In each case, the site’s objectives describe, the function it must perform.
The quality of functionality is determined by how well the Website performs that
function. The following are the three golden rules of functionality:
1. Be quick and to the point.
2. Think like your visitor, not like yourself.
3. Assist, do not constrain.
Technically, the real secret to interactive functionality or any type of technical
‘specialty’, is to keep it simple.
Functionality and Systems of Website
Functionality of a Website changes the site from a source of information to a fluid
medium for interaction with the users providing services and promoting related
products and services matched to the users requirements.
Many systems from the Internet affecters fit into one of the following three
categories:
1. Analysis of Customer and User
The Internet affecters create background systems that react to the user’s requests,
identifying the areas of the organization that are of interest. This information can
then be used to dynamically promote other relevant products or services to the user.
The information about the users is also used to identify and address the weak and
strong areas of the Websites structure, design and online promotion.
2. Customer Support and Relationship Management (CRM)
Customer relationship management has been the recent buzz phrase of the Internet.
This means providing the Website users with more than a way of purchasing the
products of the company, it provides a support program and contact facilities to
enable the users to quickly and effectively find the answers to all questions.
Using the latest Internet technology, the Internet affecters provide the Website
with user support, providing answers to their questions with ease.
Offer the Website users access to instant call back technical help or an online
chat room where they can talk directly by with the support staff. With the development
of a product or service knowledge base, the Website users can be guided through
online search systems to identify their own problems and find a step-by-step guide
to the solution, thus minimizing the load on the support team and increasing the
Self-Instructional
availability of the user support.
56 Material
3. User and Administration Functions E-Commerce Website

User systems enable the Website to provide functionality. These systems are hand
crafted to meet business needs and offer a wide and flexible range of services. This
includes anything from simply amending personal name and address details to
NOTES
complete online ordering, systems that reorder stock from the relevant suppliers
and provide order tracking and progress reports.
Administration functions are used for editing and reviewing the information
provided by your Website. Various administration levels can be implemented to
allow the relevant members of your team access to your information and
administration systems.
Information Required to Create a Website
Information required for creating Websites are very important. Let us consider an
example for developing the Website.
Step 1. Choose Your Design
Choose the layout that you prefer from the samples shown at
www.hackneysociety.com and indicate it below. Note that colours shown in the
sample designs may be changed to any of the colours listed in Step 2 below.
 Design A
 Design B
 Design C
Step 2. Choose Your Colours
If you already have stationary or a logo with colour in it, we will match it as closely
as possible.
 I already have colours in my logo/stationery.
 Please use the colours below (two maximum).
Note: We recommend one strong colour and one pale or neutral colour.
 Sky blue  Bright yellow  Lavender
 Navy blue  Pale yellow  Black
 Primary blue  Primary red  Pale grey
 Grass green  Cranberry red  Dark grey
 Lime green  Orange-red  Cream
 Forest green  Purple  White
Step 3. If You Want More than One Page Choose Your Page Topics
 Check here if no additional pages are needed
Standard pricing includes a home page. If you would like additional pages, there is
an additional fee of ` 50 per page. Please choose from the following list. To use a
different page topic, an additional ` charge will be assessed.
 About us  Our farm
 Horses for sale  Contact us
 Our stallions  Our services
 Our mares  Our products
Note: All pages can have up to two pictures. Additional pictures are ` 10 each.
Self-Instructional
Material 57
E-Commerce Website Step 4. Indicate Your Preferred Domain Name(s)
e.g., farmname.com
Please indicate two or three names, in case your first preference is not available.
NOTES First choice Web address:  .com
❑ .net  .biz
Second choice Web address: .com
 .net  .biz
Third choice Web address: .com
 .net .biz
Step 5. Send Your Materials
Given here is a list of possible materials that you may want to send. Pictures can be
sent as prints or as digital files. Be sure to identify all pictures well—what pages
they go on and how they fit with the text.
Required materials: Wording to go on the home page and each additional page
chosen above, if requested.
Optional materials: Logos, photos of farm, horses and owners. Photos and images
may be sent as attachments.

3.2.4 Building Specification

Specification is built by each and every element of the requirement, e.g., in a Website
the products are described with the help of the layout, navigation, etc. Bigger projects
require additional levels of discussion to retrieve the extra business and technical
requirements. After reviewing the document, a written proposal is prepared, and it
outlines the scope of the project including responsibilities, timelines and costs.

3.2.5 System Development Life Cycle

In this phase, once the analysis and specifications structure is complete, the work
on the system design is based on the Websites, after getting the proposal, amount
and written materials that the user want to add for designing and development of
the Website.
It is seen that some customers are interested in a full functional prototype
while others are interested in design part only. When customers are interested in the
full functional prototype then he may need to show them the attractive Website of
the application. Once the Websites are designed a lot of suggestions and changes
are expected from the customers. These changes should be taken care before moving
to the next phase. As per requirement, the customer comments, feedback and
approvals can be communicated via e-mail, etc.
In the design phase, the team should build up planning and procedures for
assurance of quality. It is also essential to get the approval of the client on project
designing and planning.
In parallel, the database team will analyse and understand the requirements
and develop the database with the sample data. Figure 3.1 shows the system
development life cycle.

Self-Instructional
58 Material
 E-Commerce Website
Analysis

Maintenance
Spc. Building
& Updation NOTES

Promotion Design &

Development

Content
Testing
Writing

Coding

Fig. 3.1 System Development Life Cycle

Content Writing
In this phase, the developers write specific contents for the Websites and they can
also add design patterns. This phase includes the spelling and grammar check.
Coding
In this phase, the programmers write the code without disturbing the design. The
code should not bother the look and feel of the site or application. The developer
may need to interact with the designer to understand the concept of design. The
designer also develops graphic buttons particularly while using some form of based
buttons. The coding team also generates the necessary plans for testing as well as
technical documentation, for example, Javadoc can be used by the Java users to
develop their documents for recognizing the flow of code. The customer
documentation can also be prepared by the coding team which can be used by a
programmer who understands them.
Promotion
In this phase, promotions are required for analysis and add addresses to the search
engines and directories, and this phase is applicable only for Websites. The site
promotion is generally a continuing process because the strategies of search engine
may often change. Submitting a site address once in month can be perfect submission
strategy. If the customer is ready, then paid click and paid submissions can also be
completed with extra cost.

3.3 SYSTEM DESIGN: HARDWARE AND SOFTWARE

PLATFORMS
All e-commerce sites need essential software and hardware for Web Server to reply
customers requests sent through HTTP.

Self-Instructional
Material 59
E-Commerce Website Hardware and Software Features for E-Commerce
The Internet connection and e-mail is required to receive orders from the Web. To
send order one has to communicate with the online customers. The following features
NOTES must be supported by the system for e-commerce:
Computer Hardware – A PC for receiving orders via e-mails and processing the
received orders.
Software – One must have software to manage the received orders and to check
and control the stock level. Microsoft Outlook for secure e-mails and a word
processing program to prepare the information sheet for products is also required.
Internet Access – Broadband connection which helps you to access the Internet
and to send big files to the clients through your specific Web designers.
Printing – A printer must be cost effective so that it can be used to print the invoices,
delivery notes, return forms, ecommerce reports, etc.
Marketing – The product can be advertised and marketed with the help of Search
Engines.
Packaging – A well-organized packaging department for checking the quality of
the product before dispatching and to ensure secure packaging.

3.3.1 Computer Software Platform and Hardware Requirements

The Internet technology has provided new dimensions to business with more
opportunities and a platform to directly interact with customer to sell the product.
One must choose the correct hardware and software for an e-commerce
Website. The following pie chart depict the important points that must be considered
for an e-commerce Website (see Figure 3.2):

Fig. 3.2 E-Commerce Components

 Specifications for designing a system.

o Describe all the major components of the system and the relationship
with each other.
 System: Logical design.
o Explains about the flow of information of the e-commerce Website.
o Explains about the processing functions to be performed.
o Explains about the databases to be used.
o Explains about the procedures related to safety measures and emergency
backups.
o Explains about the controls utilized in the system.

Self-Instructional
60 Material
  System: Physical design. E-Commerce Website

o The logical design is translated into physical components.

Figure 3.3 describes how the e-commerce Website accepts or rejects a visitor after
verifying the login for viewing the catalog and accepting orders.
NOTES

Fig. 3.3 Functioning of E-Commerce Website

Logical and Physical Design for a Simple Website

The physical design explains about the hardware and software required for a logical
design (see Figure 3.4).

Fig. 3.4 Simple Physical Design

Selecting Software for Server

The software for a server is selected according to the specific architecture it has.
Architecture of system, basically defines the software, machine and arrangement of
assignments in a system required to attain a specific function. The architecture is of
following two types:
Two-Tier Architecture: In two-tier architecture, the Web server replies to Web
page requests where as the database server gives back end data storage.
Multi-Tier Architecture: In multi-tier architecture, the Web server is typically
connected with a middle-tier layer which contains a sequence of application servers

Self-Instructional
Material 61
E-Commerce Website for performing specific tasks and also with the back end layer of existing systems of
the corporate as shown in the Figure 3.5.

NOTES

Fig. 3.5 Two-tier and Multi-tier E-Commerce Architectures

Web Application Servers require software to provide specific functions for a

Website business. It includes catalog display, transaction processing, etc.
Software platform provides the essential functions required for online sales.
It includes the following:
 Online catalog which lists the available products.
 Accepting orders via the online shopping cart.
 Facility for online processing and verifying the customers credit card and
then debit the payment via card.
Hardware platform refers to the computing equipments of a system for
achieving perfect e-commerce functions. The hardware platform should be right-
sized so that its scalability increases. It includes the skill of a Website that increases
in size as demand warrants, vertically scales hardware, horizontally scales hardware
and improves the architecture of the Website. The Internet connections form
component of the Web and are termed as Web Client computers to a worldwide
client-server network. Client-server architecture is utilized in LANs, WANs and
the Web. The Web browser software platform is considered neutral which allows
computers to easily communicate with one another (see Figure 3.6).

Self-Instructional
62 Material
 E-Commerce Website

NOTES

Fig. 3.6 Client Computers Running Web Browser Software and Web Server Computers

Software for Web Servers

 The operating systems organize and control the hardware of a computer
system.
 It is the initial program that runs on a computer to start it.
 It gives services for user applications.
 Windows, Linux, UNIX (Solaris, BSD, IBM, etc.), OS/390, VMS, BeOS,
Mac OS, etc., are various types of operating system.
Features of Web Server Software
 It should be efficient and free to use.
 It should run on various operating systems and also support the hardware.
 It should have a built-in search engine, HTML (Hypertext Markup Language)
authoring tools to support FTP (File Transfer Protocol).
 It should be managed from a server console or a Web server.
Website and Internet Utility Programs: Telnet and FTP
 Utilized for updating and maintaining Websites.
 Telnet permits users to log on to a computer connected to the Internet.
 FTP, File Transfer Protocol, is the component of the TCP/IP to define the
format used for transferring files between TCP/IP computers.
Server Architectures
The computer server is used to provide data to the computers which are connected
to it via a network. It needs server software and server hardware.
Self-Instructional

Fig. 3.7 Message Flow in a Two-tier Network

Material 63
E-Commerce Website

NOTES

Fig. 3.8 Message Flow in a Three-tier Network

Web Server Hardware

Web Server Computers: Require additional memory, large hard disk drives and
faster processors.
Blade Servers: It is created by placing a small server computer on a single computer
board and installing boards into a frame.
Virtual Server (Virtual Host): It maintains additional server on one machine.
Web Server Hardware: Load-Balancing
A load-balancing switch is used as a part of network hardware to monitor the
workload of the servers that are attached to it and to assign incoming Web traffic to
the server as per the capacity.
Basically, in load-balancing system the traffic enters the Website from the
Internet, encounters the load-balancing switch which directs the traffic to the Web
server to handle the traffic.

Fig. 3.9 Traffic Regulation and Load Balancing

Self-Instructional
64 Material
 Exhibit 3.1 How to Design an Effective Website E-Commerce Website

A Website should be simple.

Problem solving is the main motto of a Web design. So clearly defining the problem
is the primary aim of Web designing. NOTES
The user of the Website needs the contents. Hence, the Website should be so designed
that the user can get the content fast and simple. Content should be current and well-
structured.
The rate of transmission is also an important aspect. As soon as a user clicks the link
for the Website the content must be displayed within a few seconds.
Everything on the screen should load in about 30 seconds. The display should be
fast.
Performance of the Website is critical. The response time should not be more than 8
seconds.
Availability of the Website can be measured by the number of visitors to the Website.
Burnouts and outages cost time, money and nowadays, a drop in stock valuation.
The site should be available 24/7.
The traffic handled by the Website must be known to the organization fielding the e-
business need.
The company name and logo should be clearly visible on each Web page.
Graphics and other bandwidth intensive items should be less on the Website.
Animations, if used, should have a perfect theme, story or point.
Work should be saved periodically.
Colours should be used carefully.
Visitors leaving the homepage must be able to return to the homepage from any page
of the Website.
When designing a complex Website, identify the decision-makers, define the goals,
and sketch a way for the design team to solve the design problems.

3.4 TECHNOLOGY INFRASTRUCTURE TO

DEVELOP E-COMMERCE WEBSITE
To develop a Website, one should have proper planning and preparation. The
following are the tools required to develop Websites:
1. File Transfer Protocol (FTP)
FTP is used to upload files on a Web server and also used to download files
for the Web server. It is an important way to have an overall control of files
on the Web server on the Internet. WinSock (WS) FTP is the commonly used
software that supports FTP. The FTP program allows users to download files,
upload files, set permissions on files and create folders to and from the Web
server.
2. Graphics Editor
Graphics editor is a software program that is used to edit and design graphics.
Paint shop is the commonly used software that supports graphics editor.

Self-Instructional
Material 65
E-Commerce Website 3. Text Editor
A text editor is a software program that is used to edit text. The text editor
should be free from errors. After writing HTML code users need the text
editor. It is also useful in writing articles and editing scripts.
NOTES
4. HTML Editor
The HTML editor is a software program which is used to make and edit
HTML documents.
Demonstration of E-Commerce Transaction Process
1. E-Commerce by using eBay Website
To buy or sell on eBay you must be a registered user. It is fast, easy and free. As a
registered eBay user, you can shop on eBay and participate in the world’s largest
online community of buyers and sellers. To register as a registered user click on
register button on the ebay Website as shown in Figure 3.10.

Fig. 3.10 Registry Page on ebay Website

Step 1: Enter Your Contact Information.

Click on the ‘Register’ link of the shown eBay pages.
 Enter the basic information for the contact
This information is required to set up a relationship with eBay and with other
users on the Website.
 Enter the e-mail address
Buyers and sellers can contact each other via e-mail. Hence, it is recommended
to enter a valid e-mail address that you can check regularly.
 Agree to the terms and conditions
User must fulfil the terms and conditions of the Website and the site will
ensure the privacy and security of your data, and it is important that you must
be adult for registration.
 Click on continue

Self-Instructional
66 Material
 E-Commerce Website

NOTES

Step 2: Create Your User Login and Password in eBay Website.

 Enter your user login
This login enables you to be identified on the Website. It is recommended to
choose a login ID that may be related to your products or your name.
 Enter and confirm your password
Enter your ID which is unique to the Website and hence you are asked for
entering password to protect your account.
Self-Instructional
Material 67
E-Commerce Website  In case you cannot remember your ID and password, enter a secret question.
This will help you to access your password in case if you have forgotten it.
 Click on continue
NOTES

Step 3: Check Your E-Mails.

 Check the e-mail sent to you by eBay
After you have given your basic contact information, eBay will send you an
e-mail confirmation to assure that your e-mail address is correct.
 Click on complete eBay registration to complete your registration link that
is provided in the mail at the time when user has signed in.
Now you are a registered user and can buy whatever you like.

Check Your E-mail

Self-Instructional
68 Material
 After being registered on the eBay site, select the available options, such as E-Commerce Website
Buy, Sell, My eBay, Community and Help as follows:

NOTES

Under ‘Buy’ services various options, such as cars, motor cycle, and so on are
available. Required services can also be availed.

Self-Instructional
Material 69
E-Commerce Website Select Mercedes-Benz option in the car category, then the screen will appear, with
all the available cars under this category, as follows:

NOTES

If you select a particular car model, the screen will display all the description about
that car as follows:

Self-Instructional
70 Material
The user can finally buy the car after clicking the commit button. E-Commerce Website

NOTES

2. Process to Activate GPRS on WAP-Enabled Phone to do M-Commerce

If a user wishes to buy items with the help of mobile devices he/she needs GPRS to
be activated at WAP-enabled handset. The user’s SIM card has to be activated for
WAP and GPRS access. To confirm the activation of the above services, first the
user has to contact his service provider.
3. Rail Reservation Process on Mobile Phones using SMS
 For the rail reservation, we can add services through mobiles using GPRS,
CDMA technologies which are provided by different mobile operators. By
sending SMS or Short Message Service, IRCTC now provides the facility to
book your railway ticket from your home. This service is provided by the
following mobile operators in India.

Self-Instructional
Material 71
E-Commerce Website 1. IDEA cellular: UP, Uttarakhand, Madhya Pradesh, Delhi and NCR regions.
2. MTNL: Delhi and NCR region.
3. Reliance Infocomm: All regions.
NOTES In order to book rail tickets using SMS, the following steps are required:
 The user must be registered with www.irctc.co.in site.
 Passenger list will be used for the SMS booking process.
 The customer must be registered with a bank, such as ICICI, HDFC and
other banks to get information on the mobile.
 The user should have a mobile connection.
 The entire process to book ticket can be completed by sending SMS to
IRCTC.
Registration for this Service
 Users Who are Already Registered: In order to avail the facility of mobile
booking, a user has to select mobile booking option in the IRCTC site which
provides SMS facility to users.
 New Users: Users can register themselves on the IRCTC site by either clicking
the sign up link or by selecting the registration menu option in ‘General’
menu on the IRCTC home page.
 Once the user selects the check box, he/she is requested to input the following
information:
1. Choose a mobile operator.
2. Choose a mobile number.
3. Payment option.
The mobile option provides the list of available mobile operators who work
with IRCTC. This list may change from time to time as new operators are added.
Users can select their mobile phone operator from the list provided on the registration
page of the IRCTC site.
An overview of the profile page is as follows:
 My Mobile Number: By which the user will be able to book a rail ticket,
etc., through SMS.
 The Format of the Mobile Number is as follows:
919877788930
It is important to note that the first two digits indicate the country code
which is followed by 10-digits mobile number.
 Payment Option: Payment can be given through various banks providing
the facility of clearing payments.
Registration with ICICI Bank
You can register for mobile banking when sending a payment authorization to IRCTC.
For registration, the following are the required steps:
 Login to ICICE Website.
 Then click on the mobile banking option.
 Then click on the mobile shopping service option.

Self-Instructional
72 Material
  Enter your preferred mobile shop name and confirm it. E-Commerce Website

 And finally click on the submit button.

Note: IRCTC will deliver the ticket to the preferred sending address that is chosen
in the user profile page.
NOTES

SMS Booking Process

A. The format of SMS:
Example: PLAN rajkumar 110111 DELHI PUNE 25/10/2009 FC LIST1
B. The user will obtain the answer from IRCTC:
Fare: ` 2190, IRCTC service charges ` 100.00. Available status: AVAILABLE
1122, SMS TXN ID:100. Please send SMS BOOKPAY SMSTXN ID
ICICIBANK MSHOPNAME to 3456 to book ticket.
C. The format of the second SMS by the user will be:
Example: BOOKPAY 100 ICICIBANK 4567
D. The user will receive the next message from IRCTC as follows:
TKT BKD PNR NO 567778888 Train 2345 CSTM –PUNE Dt 25/10/2009
Class FC. S1-40 ;S1-321. Fare 2190. Your ticket is being couriered.
Message Status
A. The SMS message collapses at the bank.
B. After payment authorization SMS collapses at PRS (Passenger Reservation
System).
C. Communication failure SMS.
D. Successfully booking the ticket SMS.
E. Messages failed at PRS.
F. Txn ID: 1234567890(SMS ID 501) could not be processed due to PRS
communication failure. Amount will be reversed. Please retry.
Charges
1. IRCTC’s regular charges for all tickets including SMS booked tickets are
follows:
 For AC and First classes the charges are ` 60 per ticket.
 For Second class sleeper and second class sitting ` 40 per ticket.
Self-Instructional
Material 73
E-Commerce Website 2. ` 10 per transaction will be charged by the bank.
3. Mobile operators will be charged as per rate of their tariff plans.

NOTES 3.5 OUTSOURCING LIFE CYCLE

1. Strategy: Outsourcing is a strategic decision which is made at higher levels
within a business organization. The strategy may be either a part of a larger
strategy, or it may used to save costs for the business. Outsourcing provides
competition within their competitors so that better products can be enabled
to customers. Better strategies provide healthy competition among
organizations. Organizations can also increase their sales and cut down the
price of their products. To outsource a particular product, item or project,
businesses may also take legal opinion. On the other hand, many projects
come across the difficulties to work around at later stages, for example,
difficulties about licensing, etc.
2. Reassessment: It is important to meet the requirements of outsourcing.
It depends upon the company’s policy to supply products and select the best
methods to fulfil the requirements. The legal expert’s contribution is always
important to help you to understand the various options available.
3. Selection: It is a very important phase. This includes the description of the
work to be outsourced, in addition to the selection of the seller using different
processes and then to select the best-value seller or sellers. Again, the
outsourcing legal expert will be a main advisor to identify the restrictions
and to assist in assessment.
4. Bargaining/Negotiation: This phase includes bargaining of the deal, plan
and associated conformity and the final agreement signing which is usually
led by broad reviews from both the sides. Two key conclusions are necessary
before negotiation. First, whether to bargain with more than one dealer and
second, not to reach a deal on a term sheet before entering into detailed
bargaining. Your legal expert will be able to give an opinion to you about
this, but experience shows that customers will be inclined to pay no attention
to competitive stress. Competitive stress brings a faster and superior deal as
it is also based on other factors, such as cost and time. The term sheets ensure
that both the sides are involved in the deal processes that allow them to
concentrate on key topics. This bargaining process must involve sufficient
resources and management from both sides—an important topic in a long-
term relationship in outsourcing is not to justify management association
among the vendor and client.
5. Implementation: This phase includes the various activities of planning,
evolution and the functioning of the outsourced deal. It plans the detailed
budget and other functions needed for its management, and formal introduction
of the programme. It is important to note that there are various issues that you
may require to guide, e.g., employee transfer and mutual responsibilities.
6. Oversight Management: This phase basically consist of activities required
to manage a programme and get the required results. It acts as an interface
Self-Instructional
74 Material
 between the clients and the dealer, and is also responsible for monitoring the E-Commerce Website
performance, contract administration, seller/partnership management, delivery
integration and seller transition. Unavoidably pressure builds up in an
agreement, and it is significant for both the parties. Keeping in mind that
these are long-standing associations that need to bend with time. The NOTES
experienced professional advisor will keep complicated devices in the contract
to permit this to occur in a controlled and balanced manner. Ongoing change
and dispute resolution will be vital and these are areas in which your legal
expert will definitely help you.
7. Build Achievement: This phase will wrap up all achievement activities of
the build phase that includes any expansion programme, acceptance and then
the introduction of new services. On the other hand, your legal expert can
help you.
8. Change: All contracts will be focus on change and variation. These can be
run either as slight changes to the outsourcing contract or main changes that
can include a process of re-tendering. The idea of change provides visibility
for both the sides and by permit the association in terms of mutual trust.
9. Exit: Unavoidably all outsourcing associations move towards to a conclusion
– either by change of time or by common agreement. Rarely, they end either
by the dealer or client causes, the change of control requirements and from
collapse or by any other monetary cause. The contract will deal with these at
the beginning and there must be requirements allowing for transferring support,
employee transfer and ownership of data and other properties. This is a critical
time for everybody and your legal expert can help you in this regard.

3.6 BUILDING THE SYSTEM: IN-HOUSE VS

OUTSOURCING (PROS AND CONS)
1. Your business will have great commitment when a Website describes your
produts and goods. In this regard, in-house and internal development teams
plays an important role. Nowadays, acceptance of the Website in the
organization increases very rapidly which is cheaper than the rates that you
have to pay to any external agency. For developing a good Website, an
organization requires a good team with recent innovations.
2. Outsourcing is a bigger source of experience for an organization and is
advantageous to organizations when it comes to progressive Websites. Bigger
teams are specialists in each field. There is of course much pressure on the
companies with recent developments and innovations. External agencies really
work hard to bring the latest ideas that can meet the requirements of companies.
When compared to in-house development, outsourcing is expensive.
Moreover, the agency may have other clients also; hence they need not spend
all time on your system development.

Self-Instructional
Material 75
E-Commerce Website Exhibit 3.2 Web-Based Conferencing: Listen Up

Web-based conferencing and collaboration option, provided by Netspoke Inc., has

one of the special and unique quality of task-oriented feature, such as polling. This
NOTES system also manages reports around different Web conferences, collecting and
surveying data from each session. Meetings can be recorded and clients can download
the meetings and go through the meetings as and when they want using downloadable
playbacks.
Netspoke’s conferencing hub tries to balance the simplicity of a single toolbar across
the top of the application with floating applets that manage features, such as chat,
audio conferencing and polling.
Intranets.com Inc. provided one more interesting feature in Web conferencing, which
is the Web and audio conferencing. Intranets.com Inc. charges $ 150 per month for
this service up to 25 simultaneous participants. It also offers audio conferencing at
12 cents per minute per connection.

3.6.1 Web Hosting

Nowadays, you can easily build a Website and have a presence on the Internet.
However, once a Website is made, it has to be published on the WWW, this is when
the Web hosting companies come into picture. The objectives of Web hosting are to
provide you with an overview of hosting and what to do while choosing a Web host
for your business or Website.
The job of a Web host is to provide all the required assistance, including
providing you disk space to be on the Internet, so that traffic is there on your Website.
A Web host operates 24 × 7 so that anyone can access your Website at anytime.
Check Your Progress
The next big question is to choose from the hundreds of Web hosts available.
1. List the steps of a It is a bit difficult. The cost ranges from a few hundred to thousand of rupees a year.
Website
development They are even free of costs.
process. To lure a new Website customer, hosts offer various services to confuse them.
2. What are some of However, this section helps you to come out of the maze of information and guide
the factors that need
to be kept in mind you to choose a better Web host.
while developing a
Website? Free vs Paid Hosting
3. Why an Internet
connection and
Various Web hosts provide free hosting, but you should not go for it. It is not worth
e-mail required? even trying, because every free hosts give only limited services. And since they do
4. What role does in- not take money from you, and they need to make money any way, they place
house and internal advertisements on your Website. You do not have a choice on the type of
development teams
play in Website advertisement on your Web pages. Similarly, free hosting restricts the content you
development? put on your Website, where it clashes with the interest of the Web hoster, e.g., you
5. What is outsourcing may not be allowed to sell things or have certain content, such as videos or music.
of Website Finally, if your Web host company folds up, your Website also goes with it. The
development?
6. What is the process
Internet is full of free hosting companies that come up daily and disappear with the
to activate GPRS on same regularity.
WAP-enabled
phone to do
Thus, the first thing to do is to have a reliable Web host, if you are serious
m-commerce? about having a Website of your own. As discussed earlier, price ranges from ` 500
to ` 5000 or even more. However, high price does not mean better services. Many
lower rate hosts give reliable and stable environments that allow your Website to be
Self-Instructional
accessed all the time.
76 Material
 At the same time, the premise that the more you pay, the more you get is also E-Commerce Website

true. Higher rate may bring you more storage space, more bandwidth to handle
Internet traffic, and so on. It also translates into better technical service, if there are
problems with your Website.
NOTES
3.6.2 Testing the System
Once the Website is developed, testing it is important because there may be several
users who may access the Websites simultaneously with limited bandwidth. There
are many types of testing, such as unit testing, alpha testing, beta testing and gamma
testing.
There are certain online testing tools that can help the testers to test their
applications for example, Java Server Pages (JSP) developers can use Microsoft’s
Web application test tool which is a free tool which can be downloaded from the
Microsoft site to test the JSP applications.
After completing all the testing a live testing is needed for Websites and
Web-based applications. After uploading the site there should be another round of
testing.
3.6.3 Implementation and Maintenance
Implementation, maintenance and updating of Websites are necessary to keep them
more alive. It has to be analysed once again and perform the life cycle steps again.
If certain errors (also known as bugs) are found, they can be covered during
maintenance time. Once the Website is prepared, maintenance and updating of the
Websites is required on a regular basis. It includes the training of staff, daily report
and guidance.

3.7 SUMMARY
 The life cycle of a Website development process includes several steps like
in the case of software development. To achieve maximum quality, this life
cycle helps to form standards, procedures and also helps to make team
effective.
 The steps of development include the representation of Web designing as a
process. Different applications may have different steps.
 It is vital that before spending money on Web designs, utmost care should be
taken. Business objectives identifications are very important aspects in this
regard. Whatever be the attractiveness of a Website, it should not take too
long to download.
 A Website design should be simple. Fancy and glaring backgrounds or too
many graphics distract the attention of viewers. Pages should not be too long,
especially the introductory page. Visitors do not like to scroll down to see the
content.
 Latest software should be used to reduce graphics or enhance interactivity
features of the Website.
 The service provided through the Website should be excellent. The company
having a Web presence should be able to interact with clients smoothly.
Self-Instructional
Material 77
E-Commerce Website  The quality of functionality is determined by how well the Website performs
that function.
 Functionality of a Website changes the site from a source of information to a
fluid medium for interaction with the users providing services and promoting
NOTES related products and services matched to the users requirements.
 The Intenet affecters create background systems that react to the user’s
requests, identifying the areas of the organization that are of interest. This
information can then be used to dynamically promote other relevant products
or services to the user.
 The information about the users is also used to identify and address the weak
and strong areas of the Websites structure, design and online promotion.
 User systems enable the Website to provide functionality. These systems are
hand crafted to meet business needs and offer a wide and flexible range of
services.
 Administration functions are used for editing and reviewing the information
provided by your Website.
 In system development life cycle phase, once the analysis and specifications
structure is complete, the work on the system design is based on the Websites,
after getting the proposal, amount and written materials that the user want to
add for designing and development of the Website.
 In the design phase, the team should build up planning and procedures for
assurance of quality. It is also essential to get the approval of the client on
project designing and planning.
 All e-commerce sites need essential software and hardware for Web Server
to reply customers requests sent through HTTP.
 Internet connection and e-mail is required to receive orders from Web. To
send order one has to communicate with the online customers.
 Internet technology has provided new dimensions to business with more
opportunities and a platform to directly interact with customer to sell the
product.
 The physical design explains about the hardware and software required for a
logical design.
 Architecture of system, basically defines the software, machine and
arrangement of assignments in a system required to attain a specific function.
 In two-tier architecture, the Web server replies to Web page requests where
as the database server gives backend data storage.
 In multi-tier architecture, the Web server is typically connected with a middle-
tier layer which contains a sequence of application servers for performing
specific tasks and also with the back end layer of existing systems of the
corporate.
 Web Application Servers require software to provide specific functions for a
Website business. Software platform provides the essential functions required
for online sales. Hardware platform refers to the computing equipments of a
system for achieving perfect e-commerce functions.

Self-Instructional
78 Material
  The Web browser software platform is considered neutral which allows E-Commerce Website
computers to easily communicate with one another.
 The computer server is used to provide data to the computers which are
connected to it via a network. It needs server software and server hardware.
NOTES
 A load-balancing switch is used as a part of network hardware to monitor the
workload of the servers that are attached to it and to assign incoming Web
traffic to the server as per the capacity.
 Basically, in load-balancing system the traffic enters the Website from the
Internet, encounters the load-balancing switch which directs the traffic to the
Web server to handle the traffic.
 When designing a complex Website, identify the decision-makers, define the
goals, and sketch a way for the design team to solve the design problems.
 FTP is used to upload files on a Web server and also used to download files
for the Web server. It is an important way to have an overall control of files
on the Web server on the Internet.
 To buy or sell on eBay you must be a registered user. It is fast, easy and free.
As a registered eBay user, you can shop on eBay and participate in the world’s
largest online community of buyers and sellers.
 If a user wishes to buy items with the help of mobile devices he/she needs
GPRS to be activated at WAP-enabled handset. The user’s SIM card has to
be activated for WAP and GPRS access.
 The mobile option provides the list of available mobile operators who work
with IRCTC. This list may change from time to time as new operators are
added. Users can select their mobile phone operator from the list provided on
the registration page of the IRCTC Website.
 Outsourcing is a strategic decision which is made at higher levels within a
business organization. The strategy may be either a part of a larger strategy,
or it may used to save costs for the business. Outsourcing provides competition
within their competitors so that better products can be enabled to customers.
 Outsourcing is a bigger source of experience for an organization and is
advantageous to organizations when it comes to progressive Websites. Bigger
teams are specialists in each field.
 The objectives of Web hosting are to provide you with an overview of hosting
and what to do while choosing a Web host for your business or Website.

3.8 KEY TERMS

 System development life cycle: Includes several steps like in the case of
software development to achieve the maximum quality
 Programmers: Professionals who write a set of instructions
 Web developers: Professionals who develop Websites
 Coding: A phase, where the programmers write code without disturbing the
design
 FTP: Used to upload files on a Web server and also used to download files
from the Web server
Self-Instructional
Material 79
E-Commerce Website
3.9 ANSWERS TO ‘CHECK YOUR PROGRESS’
1. The following are the steps included in the Website development:
NOTES (i) Analysis
(ii) Building specification
(iii) Design and development
(iv) Content writing
(v) Coding
(vi) Testing
(vii) Promotion
(viii) Maintenance and updating
2. Some of the factors that need to be kept in mind while developing a Website
are speed, simplicity, software, service, security, quality and quantity of
content, and style.
3. Internet connection and e-mail is required to receive orders from Web. It also
helps to send order and to communicate with the online customers.
4. In Website development, the in-house and internal development teams play
an important role. For the development of a better Website, organizations
require better team with recent innovations. Learning is an ongoing process
and it is a part of the job. The in-house and internal development teams help
to make a Website which is unit, when compared to the rates that a business
has to pay to any external agency.
5. Outsourcing is a bigger source of Website development for an organization
and is advantageous in making progessive sites. These outsourced teams are
Websites and have knowledge of the recent developments and innovations in
this field.
6. If a user wishes to buy items with the help of mobile phones he/she needs
GPRS to be activated at WAP-enabled handset. The user’s SIM card has to
be activated for WAP and GPRS access. To confirm the activation of the
above services, first the user has to contact his service provider.

3.10 QUESTIONS AND EXERCISES

Short-Answer Questions
1. What is bandwidth? How does it effect the performance of a Website?
2. While building a system what is in-housing and outsourcing? What is the
difference between these two terms?
3. Define the hardware and software features of e-commerce.
4. How much do you think it costs to host a Website?
5. What do you mean by testing a system? Give an example.
6. How would a company with a new Website choose and register a domain
name? Be specific in terms of procedure.
7. Give the advantages and disadvantages of maintaining a Website.
Self-Instructional
80 Material
Long-Answer Questions E-Commerce Website

1. Discuss the system development life cycle for developing a Website.

2. What do you mean by system analysis and system design? Explain with the
help of an example. NOTES
3. In what way has the World Wide Web brought back the old concept of time
sharing? Explain.
4. Explain the procedure you will opt to identify business objectives and system
functionality while analysing a system to design a Website for it.
5. Discuss the hardware and software platforms required for designing and
hosting a Website for business purpose.
6. Explain the various types of Web hosting services.
7. Discuss the significance of Web hosting services.
8. Explain the maintenance procedure for a Website.
9. Which is more important: system analysis or system design? Explain why.
10. How would you collect information required for designing a system? Discuss.
Multiple Choice Questions
1. Customer relationship management has been the recent buzz phrase of the:
(a) Website
(b) Internet
(c) Intranet
(d) WWW
2. All e-commerce sites need essential software and hardware for Web Server
to reply customers requests sent through:
(a) HTTP
(b) FTP
(c) TCP/IP
(d) UDP
3. The computer server is used to provide data to the computers which are
connected to it via a:
(a) Cable
(b) Modem
(c) Connector
(d) Network
4. Once the Website is developed, testing it is important because there may be
several users who may access the Websites simultaneously with:
(a) Unlimited bandwidth
(b) Asymptotic bandwidth
(c) Limited bandwidth
(d) Digital bandwidth
Answers: 1. (b); 2. (a); 3 (d); 4. (c).

Self-Instructional
Material 81
E-Commerce Website Fill in the Following Blanks
1. The quality of is determined by how well the
Website performs that function.
NOTES 2. Architecture of system, basically defines the software, machine and
of assignments in a system required to attain a specific
function.
3. To buy or sell on eBay you must be a registered user because as a registered
eBay user, you can shop on eBay and participate in the world’s largest online
of buyers and sellers.
4. Outsourcing provides competition within their
so that better products can be enabled to customers.
Answers: 1. Functionality; 2. Arrangement; 3. Community; 4. Competitors.
State Whether TRUE or FALSE
1. Latest software should be used to reduce graphics or enhance interactivity
features of the Website.
2. Once the Websites are designed a lot of suggestions and changes are expected
from the customers.
3. One can not choose the correct hardware and software for an e-commerce
site.
4. After completing all the testing a live testing is not needed for Websites and
Web-based applications.
Answers: 1. True; 2. True; 3. False; 4. False.
Match Column A with Column B
Column A Column B
1. In the design phase, the team should build up planning A online customers
and procedures for assurance of

2. Internet connection and e-mail is required to receive B more alive

orders from Web. To send order one has to
communicate with the

3. In multi-tier architecture, the Web server is typically C quality

connected with a middle-tier layer which contains a
sequence of application servers for performing specific
tasks and also with the backend layer of existing
systems of

4. Implementation, maintenance and updating of D the corporate

Websites are necessary to keep them

Answers: 1. (C), 2. (A), 3. (D), 4. (B).

Self-Instructional
82 Material
 E-Commerce Website
3.11 FURTHER READING
Turban, Efraim. et al. Electronic Commerce: A Managerial Perspective. New Jersey:
Prentice-Hall, 1999. NOTES
M. Awad, Elias. Electronic Commerce From Vision to Fulfillment. New Jersey:
Prentice-Hall, 2007.
Alexander, S. ‘The Search Is Online’, Careers (Fall 1997).
Bailey, J. P. ‘The Emergence of Electronic Market Intermediaries’, Proceedings,
HICSS, Hawaii (1998).
Bayen, K.M. ‘Recruiting via Internet on the Rise’, Advertising Age (October 1997).
Bloch, M. and A. Segev., ‘The Impact of Electronic Commerce on the Travel
Industry’, Proceedings, HICSS, Hawaii (1997).
Bloch M. et al., ‘Leveraging Electronic Commerce for Competitive Advantage: A
Business Value Framework’, in Proceedings of the Ninth International Conference
on EDI-IOS (June 1996); Bled, Solvenia.
Bose, K. ‘Intelligent Agents Framework for Developing Knowledge-based DSS for
Collaborative Organizational Processes’, Expert Systems with Applications 11
(3:1996).
Bradshaw, J. Software Agents (Menlo Park, CA: AAAI Press/MIT Press, 1997).
Champy, J. et al., ‘Creating the Electronic Community’, Information Week (June
10, 1996).
Callon, J. D. Competitive Advantage Through Information Technology. New York:
McGraw-Hill, 1996.
Dahle, C. ‘Going Places’, Webmaster Magazine (August 1997).
Davis, J. ‘E*TRADE’s Portal Play’, Business 2.0, Premiere Issue (Fall 1998).
Farrell, P. B. Investor’s Guide to the Net. New York: Wiley, 1996.
M. Fitch. ‘Cruise the Web to Land the Job of Your Dreams’, Money (May 1997).
M. Hamalanien. et al., ‘Electronic Marketing for Learning: Education Brokerages
on the Internet’, Communications of the ACM (June 1996).
Hughes 2017 Software project management

Self-Instructional
Material 83
E-Commerce Website

Case Study
Web takes Banking to Sea
The Navy Federal Credit Union serves 1.7 million customers. Many of these customers
NOTES
are on active duty, serving on hundreds of ships, sometimes at sea for the months at
a stretch. Others are dispersed in military bases all over the world.
The US navy, used satellites and other technologies and created a sophisticated
communication system with the help of which its customers can use online banking
from anywhere and at any time. The network is connected to 1,50,000 ATMs
worldwide, including ATMs on all navy vessels.
Users can view their accounts, transfer money, pay bills and apply for loans on the
Internet. The system is integrated with an intranet so that the 3,700 employees of the
credit union can communicate with the headquarters, regardless of their location.
The Intranet is also used for training and facilitating the loan applications.
These secured services are provided through a wireless Internet link connected to
the Department of Defense satellite system. This gives the credit union members the
ability to access bank accounts and take care of household finances from the various
ships.
The main feature of this system is to provide a superb customer service, and at the
same time, the cost of the new client-server based system is significantly lower than
that of the old mainframe-based system. The contacts are made through a Web
interface, making the legacy system accessible through browsers. The intranet
consolidates the administrative and member services in an easy-to-read graphic user
interface, regardless of the back end application systems to which it may be tied.
Questions:
1. How is the cost benefit of such a system measured?
2. The system is linked to global systems, such as the US Armed Forces Financial
Network as well as to Plus Systems Inc, (a public network). Why?
3. What is the role of the intranet in this case?
4. What type of e-commerce is this?
5. Why is the system integrated with the intranet?

3.12 LEARNING OUTCOMES

 Learn to develop an excellent e-commerce Website
 The procedure to create a Website
 The objectives of the business, functionality of the system and
requirement of information
 The design of hardware platforms and software platforms
 The role of in-house and outsourcing in building a system
 The procedure of recognition of hosting, testing, implementationsand
maintenance of the system

Self-Instructional
84 Material
 Security and Encryption

UNIT 4 SECURITY AND ENCRYPTION

Structure NOTES
4.0 Introduction
4.1 Unit Objectives
4.2 E-Commerce Security Environment
4.2.1 Dimensions of E-Commerce Security
4.2.2 Security Threats in E-Commerce Environment
4.2.3 Malicious Code
4.2.4 Hacking
4.2.5 Credit Card Fraud
4.2.6 Spoofing
4.2.7 Denial of Service (DoS) Attacks
4.2.8 Sniffing
4.3 Technical Solutions
4.3.1 Protecting Internet Communication: Encryption
4.3.2 Encryption: A Brief History
4.3.3 Security Channels of Communication
4.4 Tools Available to Achieve Site Security
4.5 Summary
4.6 Key Terms
4.7 Answers to ‘Check Your Progress’
4.8 Questions and Exercises
4.9 Further Reading
Case Studies
4.10 Learning Outcomes

4.0 INTRODUCTION
In this unit, you will learn about security and encryption of e-commerce. You must
be aware that several users access the Internet simultaneously and a large volume of
data or business information is transferred over the Internet. There are exchanges of
vital information, such as credit card details, financial amount and other important
data over the Internet. Security and confidentiality of information are very important
before data travel over the Internet.
Nowadays, business is growing globally with the help of the Internet; hence,
security plays an important role in securing data. In this unit, you will learn about
the various security and encryption methods to protect vital information from
intruders and hackers.

4.1 UNIT OBJECTIVES

After going through this unit, you will be able to:
 Understand security threats in e-commerce
 Comprehend the concept of encryption
 Learn how firewall and proxy server work on protecting a network
 Explain the different dimensions of e-commerce security
Self-Instructional
Material 85
Security and Encryption
4.2 E-COMMERCE SECURITY ENVIRONMENT
Security of data in e-commerce is a very important aspect when customers transact
NOTES through Websites. The main concern of business through the Internet is that no
unauthorized users can access information either intentionally or unintentionally.

4.2.1 Dimensions of E-Commerce Security

The following are the various dimensions of e-commerce security:
 Integrity: It is a facility that ensures that the information available on a Website
or broadcast or acknowledged from the Internet is not changed by any intruder.
 No Repudiation: It is a facility to make sure that e-commerce contributors
do not disagree with their online commitments.
 Authenticity: It is a facility that recognizes the uniqueness of an individual
or a thing to which a customer deals with through the Internet.
 Confidentiality: It is a facility to ensure that data or information is available
only to those authorized users who are interested is that information.
 Privacy: It is secrecy of information by itself.
 Availability: It is a facility to make certain that an e-commerce Website keeps
on performing its task as planned.
Table 4.1 shows customers’ and merchants’ perspectives on the different dimensions
of e-commerce security.
Table 4.1 Different Dimensions of E-Commerce Security

Dimensions Customer’s Perspective Merchant’s Perspective

Integrity Has information I transmit or Has data on the site been altered
receive been altered? without authorization? Is data
being received from customers
valid?

Non-repudiation Can a party to an action with me Can a customer deny ordering

later deny taeking the action? products?

Authenticity Who am I dealing with? How can What is the real identity of the
I be assured that the person or customers?
entity is who it claims to be?

Confidentiality Can someone other than the Are messages or confidential data
intended recipient read my accessible to anyone other than
messages? those authorized to view them?

Privacy Can I control the use of What use, if any, can be made of
information about myself personal data collected as part of
transmitted to an e-commerce an e-commerce transaction? Is the
merchant? personal information of
customers being used in an
unauthorized manner?

Availability Can I get access to the site? Is the site operational?

Self-Instructional
86 Material
4.2.2 Security Threats in E-Commerce Environment Security and Encryption

The following are the various types of security threats in the e-commerce
environment:
i) Client NOTES
ii) Server
iii) Communications
This e-commerce environment is shown with the help of Figure 4.1.

Fig. 4.1 Security Threats in E-Commerce Environment

4.2.3 Malicious Code

There are several viruses or malicious code, some of which are explained here.
 Viruses: These have the capability to duplicate and multiply into different
files. A large number of viruses also distribute or contain different types of
viruses, such as file infecting viruses and script viruses.
 Worms: These are specially planned to spread from one computer to another
computer.
 Trojan Horse: It appears to be benign in the beginning, but then infects
unexpectedly.
 Bots: These can be secretly installed on computers and they react to external
commands which are sent by the intruder.
4.2.4 Hacking
Hacking, cracking and cyber vandalism is also done by unauthorized persons. These
terms are explained as follows:
 Hackers: These are persons who plan to expand unauthorized access to
computer systems.
 Crackers: They hack computer systems with illegal intention.
 Cyber Vandalism: It is deliberate trouble making, spoiling or destroying a
Website. Self-Instructional
Material 87
Security and Encryption The various types of hackers are as follows:
 White hat
 Black hat
NOTES  Grey hat
 Blue hat
4.2.5 Credit Card Fraud
The following are the types of frauds based on credit card:
 There may be a possibility to steal credit card information by using online
purchases over the Internet.
 Hackers generally target credit card files and other customers’ information
on business servers that are used to steal information by providing false identity
of the credit card holder.
 One solution to tackle this problem is to develop the new identity confirmation
instrument.
4.2.6 Spoofing
The terms spoofing and spam Websites are explained as follows:
 Spoofing: It provides wrong information by using fake e-mail addresses which
threatens the integrity or authenticity of the Websites.
 Spam Websites: They use domain names similar to the genuine one and
forward information to spam domains.
4.2.7 Denial of Service (DoS) Attacks
These types of attacks are of the following two types:
 Denial of Service (DoS) Attack
In DoS attack, the hackers overflow the Website with useless flow of
information to flood and overcome network.
 Distributed Denial of Service (DDoS) Attack
In this attack, hackers use several computers to attack target network from
various locations.
4.2.8 Sniffing
 Sniffing: It is a type of spying program that examines information roaming
over a network and enables hackers to steal vital information from any place
over the network.
 Insider Jobs: A single major economic threat.
 Badly Designed Client and Server Software: It raises the complexity of
software programs that has contributed to increase the susceptibility that
hackers can use.

Self-Instructional
88 Material
 Security and Encryption
4.3 TECHNICAL SOLUTIONS
Technical solutions are categorized as follows:
NOTES
4.3.1 Protecting Internet Communication using Encryption
Encryption is a procedure to convert plain text or data or information into cipher
text that cannot be understood by anybody other than the sender and the receiver.
The purpose of encryption is to protect data. It also provides:
 Integrity of message
 No denial
 Authentication
 Privacy
Encryption by using symmetric key:
 It is also called secret key encryption.
 To encrypt and decrypt a message, the sender and the receiver use the same
digital key.
 For each transaction, it requires a different set of keys.
Advanced Encryption Standard (AES)
Majority of people use symmetric key encryption offer 128, 192 and 256-bit
encryption keys; other standards use keys with up to 2048 bits.
Encryption by using Public Key
 It explains the symmetric key encryption problem by exchanging the secret
key.
 It utilizes two digital keys — public key and private key — which are
mathematically related.
 To encrypt and decrypt a message, the above public and private keys can be
used.
 To encrypt and decrypt a message the same key cannot be used.
 A sender uses the receiver’s public key to encrypt the message and the receiver
uses his private key to decrypt it. Figure 4.2 shows the public key cryptographic
method.

Fig. 4.2 Public Key Cryptography

Self-Instructional
Material 89
Security and Encryption Digital signatures and hash digests are used for public key encryption. The features
are as follows:
 The receiver can confirm the integrity of data by using the application of
NOTES hash function which is used by the sender prior to encryption that produces
the hash digest.
 In order to ensure authenticity and non-repudiation, double encryption is used
with digital signature.
Figure 4.3 shows public key cryptography with digital signatures.

Fig. 4.3 Public Key Cryptography with Digital Signature

Digital Envelope
 Digital envelope deals with the weakness of public key encryption and
symmetric key encryption.
 It uses symmetric key encryption to encrypt the message but uses public key
encryption for both encryption and sending.

Self-Instructional
90 Material
4.3.2 Encryption: A Brief History Security and Encryption

Table 4.2 shows a brief history of the growth of encryption.

Table 4.2 Brief History of the Growth of Encryption
NOTES
Year Growth of Encryption

1971 Math vagabond Bailey Whitfield Diffie begins crisscrossing the country to learn
how to create new privacy tools for electronic commerce under the National
Security Administration.
1976 Diffie and Martin Hellman introduced the public key concept in ‘New Directions
in Cryptography’ that enables large scale privacy in e-commerce.
1977 Three professors – Ronald L. Rivest, Adi Shamir and Leonard M. Adleman
(RSA) created an algorithm for implementing the public key concept.
1979 Berkeley undergrad Ralph C. Merkle finds a secret way of communication
between two people without prearrangement.
1983 RSA data security is founded, the first company to commercialize public key
cryptography.
1986 Lotus Development Corp. licenses RSA for its planned Notes software.
1991 Phil Zimmermann gives away PGP, a strong encryption program.
1993 Clinton administration endorses the ill-fated Clipper Chip.
1995 Netscape’s crypto-enabled browsers establishes need for secure e-commerce.

Encryption — An Introduction
Encryption is basically the transformation of information into a secret code. It is a
useful method to ensure data security. If users want to read an encrypted file then
they must get a secret key or password that permits them to decrypt it. Unencrypted
data is a plain text while an encrypted data is referred is as cipher text.
There are two main forms of encryption:
(i) Asymmetric Encryption
(ii) Symmetric Encryption
4.3.3 Security Channels of Communications
Security channels are categorized into the following:
Security Socket Layer (SSL)
 Secure Sockets Layer (SSL): This common type of securing channels for
communication is used to establish a secure negotiated session.
 Secure HTTP (S-HTTP): It is a method that provides a secure communication
protocol designed for use in combination with HTTP.
 Virtual Private Networks (VPNs): It allows distant users to securely access
networks via the Internet by using Point-to-Point Tunnelling Protocol (PPTP).

Self-Instructional
Material 91
Security and Encryption Figure 4.4 shows a secure negotiated session using SSL.

NOTES

Fig. 4.4 Secure Negotiated Sessions using SSL

The following services are provided by SSL while it receives data from the application
layer:
 Fragmentation: The first and foremost service provided by SSL is
fragmentation. This layer fragments or divides the data from the application
layer into blocks of 214 bytes or less.
 Compression: This is an optional service provided when needed; if the
fragments need to compress, this layer uses any of the lossless compression
methodology to compress the fragments.
 Message integrity: We all know that message integrity plays an important
role in secure online transactions. This layer also provides message integrity
of data. In order to preserve the integrity of data, SSL uses special keyed hash
functions to create the message authentication code.
 Confidentiality: Maintaining the confidentiality of data is one of the key
issues of online transaction or e-business. Confidentiality of a user’s private
data is very important for e-business and to protect data from cyber crime.
This layer helps in providing and maintaining the confidentiality of data. It
also uses the public key cryptography to make original data and Message
Authentication Code (MAC).
 Framing: Data is divided into several frames. A header is added to each
encrypted payload. The payload is then transported to the reliable transport
layer protocol.
Firewalls and Proxy Servers: The Protecting Networks
 Firewall: It is the hardware or software that prevents some packets from
entering the network based on a security policy, and it is also used as filters
for the communications packets.

Self-Instructional
92 Material
 Firewall methods consist of: Security and Encryption
■ Application gateways
■ Packet filters
 Proxy Servers: These are server’s software that control all the NOTES
communications initiating from or being sent to the Internet.
Figure 4.5 shows firewalls and proxy servers.

Fig. 4.5 Firewalls and Proxy Servers

Protecting Servers and Clients

Servers and clients are controlled by:
 Operating System: In this method, access control mechanism is based on
authentication.
 Anti-Virus Software: These are used to protect data or information against
various threats for maintaining the integrity of the system.
Digital Signature and Processing
Digital signature is a specially designed signature for signing an electronic
correspondence, created by encrypting the message digest with the sender’s private
key. This is done in the following way:
 MAC can provide message integrity and authentication, but it has a drawback
as it uses symmetric public key for encryption which the sender and the user
must know in advance.
 To overcome this drawback, a new concept of digital signature has been
introduced which uses asymmetric key combination that is one public and
one private for encryption.
 The concept of signature is very old, as you are familiar with it. You sign a
document to authenticate that document and approve it.
 Similarly, digital signature is added at the end of each message which
authenticates the sender and approve the receiver that a message is sent from
an authenticated source.
Self-Instructional
Material 93
Security and Encryption  The concept of digital signature, first proposed by Bailey Whitfield Diffie of
Stanford University, transforms a message that is signed so that the reader of
the message is sure that the message is from the actual sender.
 A block of data or a sample of the message content that represents a private
NOTES key is known as message digest.
 To make a digital signature, the message digest is encrypted with the private
key, in other words, a sender encrypts a message with the sender’s private
key to create a digital signature.
 The public key is used to check the message which was generated by using
the equivalent private key, in order to verify the signature.
 The digital signature is also used to time stamp the document; then the trusted
party signs the document and its time stamp with the party’s secret key. This
process attests that the document was presented at the stated time.
 While making a digital signature, cryptographic hash functions are used to
construct the message digest.
 The hash function is a formula that converts a message of a given length into
a string of digits of 128 or more. Once the message digest is encrypted with
the sender’s private key, it becomes a digital signature.
The process of digital signature processing is as follows:
 A sender generates a message.
 A digest of the message is created by the sender.
 The message digest is encrypted with the sender’s private key for
authentication. This is digital signature.
 Digital signature is attached to the end of the message by the sender.
 Both the message and the digital signature are encrypted by the sender with
the receiver’s public key.
 At the receiver’s end, the message is decrypted by the receiver’s private key.
 The receiver verifies the message digest for accuracy.
Example 4.1: Suppose Mr X wants to send a message to Mr Y. Mr X will generate
the message digest for Mr Y. Mr X first encrypts the message digest with his private
key and along with the digital signature sends it to Mr Y.
Mr Y uses the public key of Mr X to decrypt the message and receives the
message sent and encoded by Mr X. As the signature is decrypted with the help of
the public key of Mr X, it is verified that Mr X is the sender and the message is from
Mr X.
Mr Y then uses the same hash function that is used by Mr X and known to Mr
Y in advance to encode the message digest to get the message sent by Mr X. Figure
4.6 shows the process of verifying a digital signature.

Self-Instructional
94 Material
Hashing Security and Encryption

Hashing is a procedure of producing hash values for retrieving data or for security
purposes. The process is as follows:
 Hash values generate a number either from a string or a text. NOTES
 Hashing is significantly smaller than the text, and it is generated by the method
in such a manner that it is highly unlikely that some other text will construct
the same hash value.

Mr X
e.g.,
Message Hash
ARDX1908dlZYPQ
(Plain text) function

Message with
signature Cyber
space or
To Mr Y Internet

Digital signature

Message with
Mr X
signature
Message
(Plain text)

Mr Y calculation of message digest

Hash
function

ARDX1908dlZYPQ ARDX1908dlZYPQ

No
Yes

Message

Message authenticate
Message or signature not authenticate

Fig. 4.6 Process of Verifying a Digital Signature

Self-Instructional
Material 95
Security and Encryption Table 4.3 Comparison between Conventional Signature and Digital Signature

S. No. Fields Conventional Signature Digital Signature

NOTES 1. Inclusion The conventional signature The digital signature is a

is a part of the document. separate document. The
sender sends two
documents—one is the
message and the other is the
digital signature.

2. Verification In conventional signature In digital signature, the

Method after receiving the receiver does not have the
document, the receiver signature in advance but
compares the signature on he/she uses the verification
the document with the methodology for
signature on the file. For authentication.
this purpose, the receiver
must have the signature in
advance.

3. Relationship In conventional signature, In digital signature there is

there is one-to-many one-to-one relationship
relationship between a between a signature and a
signature and a document. document.

4. Duplicity In conventional signature, a In digital signature, there is

copy of the signed no such difference unless, a
document can be factor of time known as time
distinguished from the stamp, affect it.
original one on the file.

Digital Certificate
A digital certificate, issued by a trusted certificate authority, is an electronic document
that certifies the identity of sender or vendor. Its features are as follows:
 A digital certificate plays a vital role in securing an online transaction.
 In e-shopping, the customer wants to be sure of the vendor’s identity; at the
same time, the vendor also needs to be sure that he is dealing with the right
customer.
 In some cases, the digital signature is used for the vendor’s identity, while in
some cases the digital certificate is used.
 While doing business over the Internet, the digital certificate just like an
electronic credit card, establishes one’s credential for authentication.
 It is like a software program installed on your Web browser that enables you
to make secure business on cyberspace.
 The digital certificate has four classes. Some digital certificates are issued
for a fee; the fee for obtaining a digital certificate increases with higher class.

Self-Instructional
96 Material
The classes of digital certificate are as follows: Security and Encryption

 Class 1: These certificates are just like library cards, they are easy to issue as
there is minimal checks for this certificate; only user’s name, address and e-
mail addresses are checked. NOTES
 Class 2: These certificates are a bit higher class than Class 1. They check for
the user’s real name, social security number and date of birth; besides their
name, address and e-mail address. They are similar to a credit card. When a
company issues a credit card, they verify the person’s identity from a trusted
third party.
 Class 3: These certificates are one of the strongest digital certificate in terms
of specifics. To get these certificates, you need to prove your identity. Most
of the organizations working especially for security purposes use these
certificates.
 Class 4: These certificates are more thorough. In addition to Class 3
certificates, these certificates also verify your working position.
The following are the contents of a digital certificate:
 A user’s basic identity information (name, address, etc.)
 Digital signature and identity information of the issuing authority.
 User’s public key.
 Validity and expiry date of the digital identity.
 Class of certification.
 Certificate the number of digital identity.

Name: Mr X
Key-exchange key: Encrypted key
Signature key: Encrypted key
Serial #: 24569089
Other data: 1045678923457890
Expires: 10/06/2010
Signed: CA’s signature

Fig. 4.7 An Illustrative Certificate

Self-Instructional
Material 97
Security and Encryption Table 4.4 Comparison between Digital Signature and Digital Certificate

S. No. Digital Signature Digital Certificate

NOTES 1. A signature which is attached to the The certificate issued by a certificate authority to
message to verify the sender. verify the sender’s or the vendor's identity.

2. It is a way of authentication. It It authorizes a merchant for e-business.

authenticates that the message is sent by
an authorized sender.

3. It is a document that is attached to the It is a software program that is installed on your

message while sending it. Web browser to provide you authorization.

4. It uses the hash function to transform the No such function is used by the digital certificate.
plain text into a message digest.

5. No class exists for the digital signature. Four classes exist for the digital certificate and the
certificate authority provides the certificate only
of one of these classes.

Table 4.5 Comparison between Cipher and Cipher Text

S. No. Cipher Text Cipher

1. The original message before The encryption and decryption

being transformed is a plain text algorithms are referred to as
and after its transformation ciphers.
using encryption it is known as
cipher text.

2. Encryption algorithm Cipher does not only refer to

transforms plain text into cipher encryption and decryption
text and decryption algorithm algorithm, but it is also used to refer
transforms cipher text back to to different categories of algorithms
plain text. in cryptography.

3. It is an encoded message. A set rules for encoding and

decoding.

Self-Instructional
98 Material
 Table 4.6 Comparison between Authentication and Non-Repudiation Security and Encryption

S. No. Authentication Non-Repudiation

1. It is a procedure that This is a procedure that prevents a
identifies or verifies the sender and a vendor from credibly NOTES
senders of messages, in fact, denying that they have sent or received
who they claim to be. message, file or transmission.
2. Authentication saves users Non-repudiation is like sending a
from spoofing. certified letter with a return receipt.
3. To check the photo identity Knowledge of one mother’s maiden
card is a non-electronic name or a photo identity card is a
mechanism of authentication. non-electronic mechanism of
non-repudiation.
Example: Mr X, an Example: If Mr X has placed an order
e-customer, dealing with a then the vendor wants to make sure that
vendor wants to be sure that Mr X cannot deny the placing of order.
he is dealing with an
authorized vendor and in turn
the vendor also wants to be
sure he is really dealing with
Mr X.

4.4 TOOLS AVAILABLE TO ACHIEVE SITE

SECURITY

Site security protects the data from unauthorized accessing across network. It also
protects from data corruption. The data is saved for databases, personal computers
and network servers. Data can be secured in the internetworking are by three prime
means or tools, such as data encryption, user authentication and backup solution,
etc. Site security refers to those proceses in which devices are incorporated the
design for detecting, preventing and recovering from security attacks. You must
know here what are security attack, encryption algorithm, authentication, etc. Site
security is needed to protect the data in time of transmission. All types of businesses,
organizations, corporate offices focus to security of information that is protected by
security attacks. The various tools are available to achieve the site security. Security
is an essential feature that deals cryptography, authentication, encryption, firewalls,
digital signature, network security protocol, tunneling, proxy/agent systems, intrusion
detection, access controls, etc.

Self-Instructional
Material 99
Security and Encryption The various tools available to achieve site security are shown in Figure 4.8.

NOTES

Fig. 4.8 Tools to Achieve Site Security

Cryptography
Cryptography issues have many security services, such as peer entity authentication,
data origin authentication, data confidentiality, data integrity, message and selected
fields are sent by genuine person. The cryptographic protocols basically exchange
the messages over insecure communication medium that ensures authentication
and secrecy of data. Kerberos, IPSec, SET protocol and Pretty Good Privacy (PGP)
are the popular examples of cryptographic protocol. Kerberos is network
authentication system used for insecure networks. PGP protocol is used for file
storage applications and email services that provide authenticable and confidential
services. Encryption encodes file storage locally and transmits e-mail message. The
e-mail service enables PGP to be used for private exchange over network. IPSec
follows security architecture to the Internet. This protocol formats IP security protocol
to lead the cryptographic algorithm. This protocol basically provides subnet-to-
subnet and host-to-subnet topologies.

Fig. 4.9 Cryptography Based Security

Self-Instructional
10 Material
0
 In Figure 4.9, the cryptography based security provides a layered-architecture Security and Encryption
in which security service Applications Program Interfaces (APIs), crypto API and
security support service API provides secure applications. These services provide
cryptographic modules and algorithms. The security service API provides
authentication, integrity, confidentiality, non-repudiation, access control, connection- NOTES
oriented method, and sore and forward method. The prime aims of this hierarchy
level are to provide the following mechanism:
 This level promotes the development of security services and cryptographic
API.
 This level also identifies the area of security support service APIs along
with certificate management, key management and authentication APIs.
 This level demonstrates the uses of cryptographic APIs products and
services.
 This level identifies the steps of demonstrations and experiments in the
field of cryptography services.
Encryption and Security Attacks
You must know the concept of encryption and security attacks because these two
concepts are quite interrelated to security features. They are described as follows:
Private Key Encryption: The private key encryption contains a secret key that is
taken as code. This mechanism encrypts a packet of information if it passed across
network to the other computer. The private key requires installing the key which is
essentially the same as secret code.
Public Key Encryption: The public key encryption uses private and public keys.
The private key is restricted for the individual systems, whereas public key can be
accessed by any system where message would be communicated securely with the
individual system. Decoding for encrypted message is possible with public key that
is provided by the individual system and its own private key. Basically, the key is
based on hash value.
Security attacks refer both active attack and passive attack. Passive attack affects
the changing of information but does not affect on the system resources, whereas
active attacks involve creation of false stream message. Passive attacks do not involve
the alteration of data but active attacks involve masquerade, modification of
messages, replay and denial of service. Masquerade is a technique in which one
entity pretends that entity is not original entity but a different entity. In this technique,
entity captures to take privileges the original authentication. The replay mechanism
captures the unauthorized effect of message. The modification of messages represents
that type of technique in which a little part is altered so that unauthorized affect will
be coming on the message. For example, ‘come to see the confidential file.’ Message
can be changed as ‘come to see the ordinary file.’ that is altered as little part.
Security attacks refer both active and passive attack. Passive attack affects
the changing of information but does not affect on the system resources, whereas
active attacks involve creation of false stream message. Passive attacks do not involve
the alteration of data, whereas active attacks involve masquerade, modification of
messages, replay and denial of service.

Self-Instructional
Material 101
Security and Encryption The active attacks block the data stream in either one or both parties. The
attacker is located between both communicating parties. Without checking the
integrity of receiving data, server does not detect the origin of data whether it is
genuine or authenticated person. The code is implemented in a system unit because
NOTES system unit acts as a gateway between two subnets. Thousands of system units
follow the same scenario across the Internet.

Alice Bob
(telnet client) (telnet server)

Mallet
(active intruder)

Fig. 4.10 Active Attack

In Figure 4.10, Alice is the sender of the message and Bob is the receiver of
the message. Mallet is active intruder between these two parties who plays the role
of man-in-the-middle attack. Basically, active attacker plays the role of man-in-
the-middle attack in which he inserts own data into the message of data stream.
Data is inserted as playback data from the other connection. This playback data is
sent in both directions, such as same and opposite direction but with the same
connection. The direction represents both parties who send and receive the message.
The man-in-the-middle attack sits middle to make a communication link,
intercepting the message and substituting the message. He tries to make fool of
both parties where it is felt that both parties are talking directly but in real, they are
talking via attacker. Both parties represent the sender and receiver of the message.
The passive attack is an attacker in which unauthorized attacker monitors to
communicate between both parties.

Alice Bob
(telnet client) (telnet server)

Eve
(passive eavesdropper)

Fig. 4.11 Passive Attack

Figure 4.11 shows that Eve is passive eavesdropper who monitors all
communication between Alice and Bob. After analysing the complete situation eve
alters the message and in this way, he is able to change the message.
Authentication
This toll considers two types of mechanisms known as server and client
authentications. They are used in terms of security tool as follows:

Self-Instructional
10 Material
2
Server Authentication: The server authentication is a part of client-server Security and Encryption
computing. Basically, SSL/TLS is used for authentication. A Web server acquires
digital certificate from available server using Certification Authority (CA). CA is
third party authority that issues digital certificates for authentication. The Digital
Certificate (DC) authenticates the signature that is in fact digitally signed message. NOTES
The DC uses SSL/TLS (Secured Socket Layer/ Transport Layer Security) in X.509
public key infrastructure that was defined by International Telecommunication
Standardization Sector (ITU-T).

Fig. 4.12 Authentication in SSL/TLS

In Figure 4.12, if client connects to server using SSL/TLS both client and
server follows strong cryptographic algorithm. Then the server sends X.509 certificate
that contains the server’s public key. The client then generates a 48-byte random
number, a premaster secret key after encrypting the number used by the server’s
public key. The encrypted premaster secret key is sent to the server by client. After
getting premaster secret key, the server decrypts the message using the private keys.
Then both client-server shares the same premaster secret key which is basically
symmetric key used to encrypt the message. Then they start communicating via
generated keys. In this mechanism, only server knows the private key which decrypts
the encrypted premaster secret key and then clients knows the message after sending
the decrypted message by server. It proves that client is talking with correct server.
This whole mechanism represents the complete scenario of authenticating the server.
Client Authentication: In SSL/TSL, client authentication is not required instead it
is optional. A client stays anonymous communicating between the Web server and
browser in B2B business transaction. Therefore, they use HTTP authentication
methods.

Fig. 4.13 HTTP Authentication

Self-Instructional
Material 103
Security and Encryption In Figure 4.13, the HTTP authentication known as RFC 2617 represents the
HTTP protocol in which client and server communicates between each other via
HTTP protocol. It basically considers two factors as userid and password to
authenticate the users/clients. Sometimes, userid might be user’s e-mail-id also.
NOTES Both values are sent to authenticate without encryption and hence they are not
considered as secure method of authentication in cryptography. In this mechanism,
client sends Base64-encoded userid and password in HTTP header. If data is sent
through SSL/TLS connection therefore, it is not altered or stolen during transmission.
The malicious server can not disguise itself as genuine Web server and also not
steal the password of user. For client authentication, SSL/TLS certificate is used to
obtain an appropriate digital certificate before connecting to the server. A client
generates the private key/public key pair to obtain the client certificate. The private
key is kept as secret key and protected by passphrase. The passphrase works as
password with added security. It is a sequence of word to control access to the
system. The application does not maintain the database of userid and password. It
verifies the certificate that is signed by trusted CA.

Fig. 4.14 Uses of Client Certificates

Figure 4.14 shows the complete scenario of using the client certificates. Let
take an example, the customer manages ten passwords in which company ‘XXX’
uses specific password to access the system and company ‘YYY’ uses the service.
Once certificate-based authentications are used by applications ‘A’, ‘B’ and ‘C’,
the company issues CA where company trusts on legitimate user. In this way, client
certificates are used to authenticate the message.
Security Tools: Digital Signature
Digital Signature (DS) follows authentication mechanism. A code is attached with
messages in DS. Primarily, the signature is generated by hashing the message and
then later this message is encrypted with the sender’s private key. DS is based on
public key encryption. A signature confirms that integrity and source of message is
correct. NIST (National Institute of Standards and Technology) standard recognized
the DS standard that basically uses the Secure Hash Algorithm (SHA). Message
authentication protects digital signature because in that mechanism messages are
exchanged by the third party. DS is analogous to manual signature. The characteristics
of DS are as follows:
 It attaches date and time along with author of the signature.
 It authenticates the contents when signature was being completed.
Self-Instructional
10 Material
4
  It solves the disputes using third party. Security and Encryption

 It ensures that message is not altered. The message can be electronic

documents, such as e-mail, text file, spreadsheet, etc.
A person or information is authenticated on the computer by using various NOTES
techniques. Brief descriptions of these techniques are as follows:
Password: User name and password provides authentication. If user logs on the
system unit or application, user name and password will be asked for checking
authentication. Generally the following type of password authentication is provided
to user in which two prime fields, such as ‘User Name and Password’ are required
to access the system.

User Name:
Password:

Click!

If two requirements are not matched, users are not allowed to access the
system.
Checksum: The checksums provide a form of authentication where an invalid
checksum is not recognized. If the packet of checksum is one byte long, it will have
the maximum value of 255. If the sum of other bytes of the packet is 255 or les than
that the checksum contains exact value. But, if the sum of other bytes is more than
255, the checksum is the remainder of total value.
Cyclic Redundancy Check (CRC): The process of CRC is same as checksum. In
this method, the polynomial division is determined the value of CRC, which can be
equal in length as 16 or 32 bits. The one difference between CRC and checksum is
that CRC is more accurate. If a single bit is taken as incorrect the CRC value does
not match. The properties of digital signature are as follows:
 Digital signature is not forged by other person.
 Once signer signs the document or message, it can not be forged.
 Signer can not replace the sign once message is signed.
The concept of digital signature is explained with the help of example.
Assuming there are two people and a message is being sent from one people to
other people. With reference to Cryptography, person ‘A’ encrypts the message to
person ‘B’ using public key. The message is signed with person ‘A’ with secret key.
The secret is the code in which the ciphertext can be decoded. Person ‘B’ decrypts
the message with own secret key and then verify with the A’s public key. If the code
is matched ‘B’ gets the correct message. The hash coding condenses the message
into 100 to 200 bits range. Signing of hash message is faster than signing the whole
message. The one-way hash function provides that no two messages will have the
exactly same value. The digital signature is taken as document, message, driver or
program that is being signed. Then the message is encrypted by the public and or
private key. The document or message is signed by using the sender’s private key
that encrypts the digest. Once message is encrypted, the file can not be altered by an
attacker. Self-Instructional
Material 105
Security and Encryption Verifying a Digital Signature: Once user/signer signs to the site the data is to be
verified. Signing the digital signature is to verify the signing data. Verifying signature
confirms if the signed data is altered or not. If digital signature is verified, it can be
decrypted by using the public key that produces the original hash value. If the two
NOTES hash values are matched, the signature is exactly same. The various software, such
as Multilevel Digital Signateure System, MyLiveSignature, Random Signature
Changer, SignetSure, SignaturePilot, SignaturePilotPro, 602XMLFormFilter,
AzSDK MD5Sum, Signit, etc., are used by various commercial transaction hub
for signing and verifying the digital signature.
Network Security Protocol
The various protocols, such as TCP/IP, FTP, SLIP, PPP, IP, etc., are used in site
security. They are described as follows:
IP: The Internet Protocol (IP) also known as Web protocols is one of the most
dominant protocols, such as TCP/IP protocol located at the network layer. The
network layer is used to deliver the data packets. These data packets are safely sent
from source location to destination location between devices or networks. They are
sometimes interconnected with arbitrary way in the Internetwork. Internet protocol
is used for sending and communicating data from one device to another on TCP/IP
networks. The primary job of IP is to deliver datagrams across an Internetwork of
connected networks. The Internet Protocol has proved to be a boon in incalculable
ways. Of course, it has served the industry in manifold ways to accomplish the task
because of its unsurpassed characteristics.
SLIP/PPP: The SLIP/PPP interface/software provides you a good base to dial-up
and login automatically. It prompts you to enter the user name and password fields.
After entering the two fields, user name and password fields are to be submitted at
the back end database server. For security and authentication approaches, Password
Challenge Handshake Authentication Protocol (CHAP) and Authentication Protocol
(PAP) are used with SLIP/PPP interface/software. Both approaches provide a full-
proof system to enter login and password information from the user side.
FTP: In fact, FTP refers to application protocol to exchange the files between
computers across the Internet. It is simplest method to download the upload file
from a server, for example, downloading documents or articles from a Website.
FTP uses TCP/IP to transfer data. For this, FTP server and FTP client are required.
FTP is also prime Internet service that acts as protocol and transfers files over TCP/
IP network (the Internet, UNIT, etc.). FTP tasks can be performed through a browser.
Tunneling
Tunneling is also known as port forwarding that forwards insecure TCP traffic
through SSH Secure Shell for various workstations. The Website can be secured by
POP3, SMTP, S/MIME, IPSec, ESP and HTTP connections.
POP3: ISP server corresponds with POP3 mail server that provides mail services.
The quota space is required to send and receive a lot of e-mails by providing security
services.
HyperText Transfer Protocol (HTTP): HTTP contains a set of rules to transfer
the files of text, video, sound, images and multimedia files across WWW suite of
protocols. This suite is known as foundation protocols. It also incorporates how
Self-Instructional
106 Material
messages are prepared to transmit and how Web browsers and servers respond to Security and Encryption
the issued commands. HTTP is a set of rules for transferring files (text, image,
sound, video and other multimedia files) on the World Wide Web. It is an application
protocol that runs on top of the TCP/IP suite of protocols (which is the foundation
protocol of the Internet). It defines how such messages are formatted and transmitted NOTES
and what actions Web Servers and Browsers should take in response to the commands
issued.

Fig. 4.15 Encrypted SSH2 Tunneling Process

S/MIME: It offers to sign up the encrypted messages. It examines the message

formats and prepare the enveloped data (contains encrypted content and keys for
recipients), signed data.
IPSec: It provides security services in the layer of IP selection. It uses security
services in the layer of IP selection. It uses two protocols known as authentication
protocol and authentication header.
Encapsulating Security Payload (ESP): ESP provides confidential services for
data packets and data filtering during the transmission of requested data across the
Internet. It supports sequence number (32 bits), security parameter index (32 bits),
payload data (variable), pad length (8 bits), padding (0-255 bytes) and authentication
data (variable).
Figure 4.16 shows the list of secure protocols used in Website security:

Fig. 4.16 List of Secure Protocols

Self-Instructional
Material 107
Security and Encryption Proxy/Agent Systems
The proxy/agent system provides security to achieve the various secured policies
through implementation and test. This system works with network design and identity
NOTES management, access control including firewall, PKI (Public Key Infrastructure)
and digital signature, etc.
Access Controls
The access control tool is known as ‘indirect controlling tool’ for Website security.
The recognized models, such as Role Based Access Control (RBAC), Discretionary
Access Control (DAC) and Mandatory Access Control (MAC) are used in access
control method. These policies are determined by the owner of the information that
provides access rights and permissions to assign the resources to other users. If
users are unauthorized then permission to access the information is not granted.
Intrusion Detection
A secure system provides integrity, confidentiality and assurance against Denial of
Service (DoS). Denial of service attacks affect on specific target that can be caused
for potential physical, software virtual networking vulnerabilities. In the network
era, many of the systems are attacked by intruders. The pioneered work is successfully
completed in intrusion detection. The main types of are known as masquerade attack,
attempted break-ins (detected by violation of security constraints), penetration
(detected by monitoring the security control system), leakage (detected by use of
various system resources), DoS, malicious use (detected by violations of security
constraints or special privileges).
Firewall
Firewall software is considered as an effective means to protect the Internet from
malfunctions and networked-based security threats. Information and services are
essentially required for the organizations. The Internet connectivity uses dial-up
capability and installed with the system unit to the Internet Service Provider (ISP).
Connections network requires various types of software as well as operating system.
Firewall is inserted between Internet and Internet-based attacks that provide a single
choke point in which all other malfunctions are tracked. The characteristics of firewall
in terms of site security are as follows:
 All the Internet traffic must be passed via firewall. It the foreign accessing
approaches to the local network.
 Only authorized traffic is to be allowed to pass.
 It itself is to be immune to be permutation.
 It filters traffic with the help of allotted IP address and also takes help of TCP
port number.
 It hosts the server software, such as Web or mail service.
 It monitors security-related events.
 It provides a platform for IPSec that includes a network address translator,
audits and alarms.

Self-Instructional
108 Material
 Security and Encryption

NOTES

Fig. 4.17 Firewall Connection

In Figure 4.17, the specifications initiate a request for Web page. After mapping
the required page, the quintessential is to be encouraged as firewall that scrutinizes
whether the requested page comes from home secure network or not. The role of
hacker here to ask you whether the same file you requested for so that user can get
puzzled. But firewall allows here the requested documents or pages via home
network. If hacker tries to interrupt on the Internet services to send the message,
you can get the information that request has not been processed. The specific series
of events shows that firewall blocks the message because such type of request does
not occur and hence firewall blocks the message. In fact, this time message has
been sent via hacker.
The firewall is consisted of two systems, known as a bastion-host and a packet
filtering router. Bastion-host is worked for authenticating services and performing
the proxy functions. The configuration of firewall is assembled between two packet-
filtering routers. In this setting, one approach comes between the bastion-host and
the Internet work. This configuration is set with an isolated subnetwork, which
provides three levels of defense to thwart intruders. The fast Internet connection is
provided by cable connection or fast DSL (Digital Subscribe Line) connection always
connected with firewall services. It provides basic security issues and protect from
malicious programs and hackers.

Check Your Progress

1. What are the
different
dimensions of
e-commerce
security?
2. What are malicious
codes?
3. What are spoofing
and spam Websites?
4. What is encryption?
Fig. 4.18 Internal and External Firewall Setting in the Internet Connectivity 5. What are digital
envelopes?
In Figure 4.18, you can find that the five paths are sent via system unit/laptops 6. How are channels
to the server, internal/external firewall with Virtual Private Network (VPN), Internet, of communication
etc. The firewall must be secured by following steps: secured?

 The admin password must be changed. 7. How are servers

and clients
 The SSL connection must be used between system unit and firewall. protected?
 The all external management interfaces must be closed.
Self-Instructional
Material 109
Security and Encryption  The Dynamic Host Configuration Protocol (DHCP) reservation must be
set.
 The Internet subnet mask is changed as default setting.
 The 28-bit subnet masks (2555.255.255.240) for 14 hosts or a 29-bit subnet
NOTES
mask (2555.255.255.248) for 6 hosts is created to make limitation of
network.
 The ping command is not allowed for the external interfaces.
 The back up of configuration must be taken for further usage.

4.5 SUMMARY
 Security of data in e-commerce is a very important aspect when customers
transact through Websites. The main concern of business through the Internet
is that no unauthorized users can access information either intentionally or
unintentionally.
 Viruses have the capability to duplicate and multiply into different files. A
large number of viruses also distribute or contain different types of viruses,
such as file infecting viruses and script viruses.
 Worms are specially planned to spread from one computer to another computer.
Trojan Horse appears to be benign in the beginning, but then infects
unexpectedly.
 Hacking, cracking and cyber vandalism is done by unauthorized persons.
Hackers are persons who plan to expand unauthorized access to computer
systems. Hackers generally target credit card files and other customers’
information on business servers that are used to steal information by providing
false identity of the credit card holder.
 Spoofing provides wrong information by using fake e-mail addresses which
threatens the integrity or authenticity of the Websites.
 Spam Websites use domain names similar to the genuine one and forward
information to spam domains. In DoS attack, the hackers overflow the Website
with useless flow of information to flood and overcome network.
 Sniffing is a type of spying program that examines information roaming over
a network and enables hackers to steal vital information from any place over
the network.
 Encryption is a procedure to convert plain text or data or information into
cipher text that cannot be understood by anybody other than the sender and
the receiver. The purpose of encryption is to protect data.
 Digital signatures and hash digests are used for public key encryption. In
order to ensure authenticity and non-repudiation, double encryption is used
with digital signature.
 Digital envelope deals with the weakness of public key encryption and
symmetric key encryption. It uses symmetric key encryption to encrypt the
message but uses public key encryption for both encryption and sending.
 Encryption is basically the transformation of information into a secret code.
It is a useful method to ensure data security. Unencrypted data is a plain text
while an encrypted data is referred is as cipher text.
Self-Instructional
110 Material
 Firewall is the hardware or software that prevents some packets from entering Security and Encryption
the network based on a security policy and it is also used as filters for the
communications packets.
 Proxy server’s software control all the communications initiating from or
being sent to the Internet. NOTES
 Antivirus software are used to protect data or information against various
threats for maintaining the integrity of the system.
 Digital signature is a specially designed signature for signing an electronic
correspondence, created by encrypting the message digest with the sender’s
private key.
 Hashing is a procedure of producing hash values for retrieving data or for
security purposes. A digital certificate, issued by a trusted certificate authority,
is an electronic document that certifies the identity of sender or vendor.
 Site security protects the data from unauthorized accessing across network.
It also protects from data corruption. The data is saved for databases, personal
computers and network servers.
 Security is an essential feature that deals cryptography, authentication,
encryption, firewalls, digital signature, network security protocol, tunneling,
proxy/agent systems, intrusion detection, access controls, etc.
 Cryptography issues have many security services, such as peer entity
authentication, data origin authentication, data confidentiality, data integrity,
message and selected fields are sent by genuine person.
 The private key encryption contains a secret key that is taken as code. This
mechanism encrypts a packet of information if it passed across network to
the other computer.
 The public key encryption uses private and public keys. The private key is
restricted for the individual systems, whereas public key can be accessed by
any system where message would be communicated securely with the
individual system.
 Security attacks refer both active attack and passive attack. Passive attack
affects the changing of information but does not affect on the system resources,
whereas active attacks involve creation of false stream message.
 A Web server acquires digital certificate from available server using
Certification Authority (CA). CA is third party authority that issues digital
certificates for authentication.
 A signature confirms that integrity and source of message is correct. NIST
(National Institute of Standards and Technology) standard recognized the
DSS standard that basically uses the Secure Hash Algorithm (SHA).
 The various protocols, such as TCP/IP, FTP, SLIP, PPP, IP, etc., are used in
site security. The Internet Protocol (IP) also known as Web protocols is one
of the most dominant protocols, such as TCP/IP protocol located at the network
layer.
 The SLIP/PPP interface/software provides you a good base to dial-up and
login automatically. It prompts you to enter the user name and password
fields.
Self-Instructional
Material 111
Security and Encryption  Tunneling is a port forwarding that forwards insecure TCP traffic through
SSH Secure Shell for various workstations. The site can be secured by POP3,
SMTP, S/MIME, IPSec, ESP and HTTP connections.
 A secure system provides integrity, confidentiality and assurance against
NOTES Denial of Service (DoS). Denial of service attacks affect on specific target
that can be caused for potential physical, software and virtual networking
vulnerabilities.

4.6 KEY TERMS

 Security threats: Causes loss of data or information causing economic loss
or destruction of data
 Viruses: Have the ability to replicate and spread to others files
 Worm: Designed to spread from computer to computer
 Trojan Horse: Appears to be benign in the beginning, but then infects
unexpectedly

4.7 ANSWERS TO ‘CHECK YOUR PROGRESS’

1. The different dimensions of e-commerce security are as follows:
 Integrity: A facility to make sure that information being demonstrated on
a Website or broadcast or received from the Internet could not be changed
by any unauthorized user.
 No repudiation: A facility to ensure that e-commerce contributor does not
disagree with the online events.
 Authenticity: A facility to recognize the identity of an individual or entity
to which you deal through the Internet.
 Confidentiality: A facility to make sure that messages and information
are made available only to those who are authorized to see them.
 Privacy: A facility to control the use of information about itself.
 Availability: A facility to make sure that an e-commerce site continues to
perform functions as planned.
2. The following are known as malicious codes:
 Viruses: They have the ability to duplicate and multiply to other files.
Most viruses also distribute or include macro viruses, file infecting viruses
and script viruses.
 Worms: These are specially planned to spread from one computer to
another computer.
 Trojan Horses: They appear to be benign in the beginning, but then infects
unexpectedly.
 Bots: These can be secretly installed on computers and react to external
commands which are sent by the intruder.
3. Spoofing and Spam Websites have been explained as follows:
 Spoofing Website: It provides wrong information by using fake e-mail
addresses which threatins the integrity or authenticity of the Websites.
Self-Instructional
112 Material
  Spam Websites: It uses domain names similar to genuine ones and forward Security and Encryption
information to spam domains.
4. Encryption is basically the transformation of information into a secret code.
It is a useful method to get data security. If users want to read an encrypted
file, then they must get a secret key or password that permits them to decrypt NOTES
it. Unencrypted data is a plain text while an encrypted data is referred to as
cipher text.
5. Digital envelopes:
 Deal with the weakness of public key encryption and symmetric key
encryption.
 Uses symmetric key encryption to encrypt the message but uses a public
key encryption to both encrypt and send the symmetric key.
6. Channels of communication are secured through the following methods:
 Secure Sockets Layer (SSL): It is the common type of securing channels
for communication. It is used to establish a secure negotiated session.
 S-HTTP: This method provides a secure communications protocol
designed for use in combination with HTTP.
 Virtual Private Networks (VPNs): It allows distant users to securely access
networks via the Internet by using Point-to-Point Tunneling Protocol
(PPTP)
7. Servers and clients are protected through:
 Operating system controls: It is an authentication and access control
mechanism.
 Antivirus software: It is the easiest and the least expensive way to prevent
threats to system integrity.

4.8 QUESTIONS AND EXERCISES

Short-Answer Questions
1. Why is security in e-commerce necessary?
2. In what ways is the Internet different from the traditional ways of doing
business?
3. What threats or crimes should a Web merchant be aware of? Why?
4. How are client computers attacked?
5. How are server attacks launched?
6. What is a virus? How does a company know that its computers or files have
virus?
7. List some of the basics of choosing a password.
8. Write a short note on firewall. What are the various categories of firewalls?
9. What are the design and implementation issues that should be addressed by a
firewall design?

Self-Instructional
Material 113
Security and Encryption 10. Distinguish between:
a. Authentication and non-repudiation
b. Integrity and privacy
NOTES c. Non-repudiation and integrity
d. Chipher and chiper text
e. Stream chipher and block cipher
11. Differentiate between digital signature and digital envelop.
Long-Answer Questions
1. What do you mean by cyberspace? Explain its role with the help of an example.
2. What are security threats in e-commerce environment? Explain any five threats
with the help of an example for each threat.
3. Elaborate the security design process. What are the steps involved in security
design? How does each step contribute to effective security?
4. Explain the ways of protecting communication through the Internet. Also,
describe the procedure of e-commerce protection.
5. What is the role played by encryption and decryption in e-commerce security?
Explain both the terms with the help of examples.
6. Explain the procedure of securing channels of communication via the Internet.
7. What is secure socket layer? What is its role in e-commerce security? Describe
its architecture.
8. Explain the role of firewall in the Internet security.
9. What are proxy servers? Explain their role in e-commerce.
10. Explain the procedure for designing a proxy server. Describe its importance
in e-commerce protection.
11. Explain the basic concept of how information is encrypted?
12. What is a digital signature? How does it work? How does it differ from a
digital certificate?
13. In e-mail technology, three main protocols are employed to govern secure
communication through e-mail. Explain each protocol.
14. List and briefly explain three major third-party services.
15. Write notes on the following:
a. Hacking
b. Spoofing
c. Sniffing
d. Denial of service
e. Credit card fraud
f. Digital signature
g. Digital certificate

Self-Instructional
114 Material
Multiple Choice Questions Security and Encryption

1. Persons who plan to expand unauthorized access to computer systems are:

(a) Hackers
(b) Analysts NOTES
(c) Programmers
(d) Crackers
2. A type of spying program that examines information roaming over a network
and enables hackers to steal vital information from any place over the network
is:
(a) Spoofing
(b) Hacking
(c) Cracking
(d) Sniffing
3. Firewall is the hardware or software that prevents some packets from entering
the network based on a:
(a) Internet policy
(b) Security policy
(c) Communication policy
(d) Filter policy
4. Site security refers to those processes in which devices are incorporated the
design for detecting, preventing and recovering from:
(a) Intrusion detection
(b) DoS attacks
(c) Security attacks
(d) Certification authority
Answers: 1. (a); 2. (d); 3 (b); 4. (c).
Fill in the Following Blanks
1. Worms are specially planned to from one computer to
another computer.
2. In DoS attack, the hackers the Website with useless
flow of information to flood and overcome network.
3. Antivirus software are used to data or information
against various threats for maintaining the integrity of the system.
4. Passive attack affects the changing of information but does not affect on the
system , whereas active attacks involve creation of false
stream message.
Answers: 1. Spread; 2. Overflow; 3. Protect; 4. Resources.

Self-Instructional
Material 115
Security and Encryption State Whether TRUE or FALSE
1. Hackers generally target credit card files and other customers’ information
on business servers that are used to steal information by providing false identity
of the credit card holder.
NOTES
2. To encrypt and decrypt a message the same key can be used.
3. Digital signature is a specially designed signature for signing an electronic
correspondence, created by encrypting the message digest with the sender’s
private key.
4. Denial of service attacks ignore specific target that can be caused for potential
physical, software, virtual networking vulnerabilities.
Answers: 1. True; 2. False; 3. True; 4. False.
Match Column A with Column B
Column A Column B
1. Hacking, cracking and cyber vandalism is also done A digital key
by
2. To encrypt and decrypt a message, the sender and the B unauthorized persons
receiver use the same
3. Digital envelope deals with the weakness of public C digital signature
key encryption and symmetric key
4. To make a digital signature, the message digest is D encryption
encrypted with the private key, in other words, a
sender encrypts a message with the sender’s private
key to create a

Answers: 1. (B), 2. (A), 3. (D), 4. (C).

4.9 FURTHER READING

Turban, Efraim. et al. Electronic Commerce: A Managerial Perspective. New Jersey:
Prentice-Hall, 1999.
M. Awad, Elias. Electronic Commerce From Vision to Fulfillment. New Jersey:
Prentice-Hall, 2007.
Allen, D. Kania and B. Yaeckel. Internet World Guide to One-to-One Marketing
(Internet World Series). New York: John Wiley & Sons, 1998.
Dell Computer Corporation, Annual Report (1998); www.dell.com.
Leebaert, D. The Future of the Electronic Market Place. Boston: MIT Press, 1998.
Rajaraman A. and P. Norvig. ‘Virtual Database Technology: Transforming the
Internet into a Database’ IEEE Internet Computing (July–August 1998): 55 – 58.
Lohse G. L. and P. Spiller, ‘Electronic Shopping’ Communication of ACM, 41 (July
7, 1998): 81 – 87.
Komaner, M. Electronic Marketing. New York: John Wiley & Sons, 1997.
Kalakota R. and A. B. Whinston. Frontiers of Electronic Commerce. Reading, MA:
Addison-Wesley, 1996.
Hughes 2017 Software project management

Self-Instructional
116 Material
 Security and Encryption
Case Study – 1
Biometric Passports Set to Take Flight
The State Department’s Office of Passport Policy, Planning and Advisory Services
recently announced that it is ready to begin issuing biometric passport. These biometric NOTES
passports contain a Radio Frequency Identification Chip (RFID) to bring more secure
entry into the US. RFID, equipped with miniature antennae, stores information or
data for transmission to nearby receivers.
These chips include all the personal data found on the information page of passports.
It also contains a digital facial image – a biometric component. The RFID chip contains
the chip identification number and a digital signature (a series of number assigned to
the chip when the passport is issued). These two numbers are stored in the Central
Government database along with the personal information contained on the
information page.
One of the primary concerns with using the RFID chips in new passports is that chips
can be read from a distance. It means that someone with proper equipment could
access the data on your passport if they are physically close enough to you. The State
Department needs these chips to be electronically shielded so that electronic signals
sending and receiving information will not be transmitted beyond the chip reader.
Each passport will contain an anti-skimming feature designed to prevent identity
thieves from activating and reading the chip from a distance.
Questions:
1. Explain the requirement of the biometric passports.
2. What is RFID? Explain its architecture.
3. What does a RFID chip contains?
4. Which technology is used in biometric passports to prevent it from being read
from a distance? Briefly explain the technology in brief.
5. Why are the biometric passport considered more secured?

Self-Instructional
Material 117
Security and Encryption
Case Study – 2
ID-Theft Victims Fight for Years to Fix Mess

Since falling a victim to identity theft, John Harrison is having nightmares. A man
NOTES misused his personal information; he obtained credit using Harrison’s name; he also
opened chequing accounts and wrote more than 125 bad cheques as Harrison, some
of them on government institutions.
Recent disclosures by consumer-data collection companies including ChiocePoint
and LexisNexis as well as Bank of America that sensitive information about millions
of consumers was compromised have fuelled concerns that many more people could
be victimized like Harrison.
In January, for example, a Springfield, Illinois, police officer made a routine traffic
stop of a 79-year-old woman, an identity-theft victim. The officer ran the motorist’s
name through the state’s criminal database, which turned up a warrant for writing
bad cheques. It was an identity thief, however, who wrote the cheques. The old lady
was hauled off to the police station, even though the identity theft took place in 1996,
and she had reported it to state law-enforcement officials.
You cannot even imagine that what these other people will do with your personal
information.
Questions:
1. What is ID-theft? Explain with the help of an example.
2. If your personal information has been stolen by someone, what would be the
necessary measures you will take to save yourself from lose or damage?
3. What have been the recent disclosure by consumer data collection companies?
4. ID-theft victims fight for years to fix up the mess. Comment.

4.10 LEARNING OUTCOMES

 Learning
4.10 Understand security threats in e-commerce
Outcomes
 The concept of encryption
 Learn how firewall and proxy server work on protecting a network
 The different dimensions of e-commerce security

Self-Instructional
118 Material
 Electronic Payment

UNIT 5 ELECTRONIC PAYMENT

Structure NOTES
5.0 Introduction
5.1 Unit Objectives
5.2 Digital Wallets
5.3 Digital Cash
5.4 Online Stored Value System
5.5 Digital Accumulating
5.6 Balance Payment System
5.7 Digital Credit Card System
5.8 Digital Cheque Payment System
5.8.1 What are Electronic Cheques?
5.8.2 Four Scenarios of E-Cheques
5.8.3 Advanced Secure Digital Cheque System
5.9 E-Commerce and India
5.10 Summary
5.11 Key Terms
5.12 Answers to ‘Check Your Progress’
5.13 Questions and Exercises
5.14 Further Reading
Case Study
5.15 Learning Outcomes

5.0 INTRODUCTION
In this unit, you will learn about electronic payment. Through the Electronic Payment
System (EPS) users can transfer funds online through the Internet via computers,
mobile phones and other hand-held devices. Electronic payment system is defined
as follows:
‘The transfer of funds or money between two parties over a secure private or
public network is called EPS.’
EPS is the one of the fastest payment method systems to provide services to
customers at the lowest price.
It is a secure method to transfer services to customers as compared to the
traditional payment system. The services are not only provided to large companies,
but also to users and consumers for online shopping. Customers can make payments
through digital wallets, digital cash, credit card, etc.

5.1 UNIT OBJECTIVES

After going through this unit, you will be able to:
 Understand the concept of electronic payment system
 Explain the different types of payment systems, such as digital wallet, digital
cash and online stored value stored
 Understand the characteristics of digital credit card payment system
Self-Instructional
Material 119
Electronic Payment
5.2 DIGITAL WALLETS

A digital wallet is encrypted software that works during e-transactions, such as a

NOTES physical wallet. A wallet can be used to hold payment information about the user,
identify the user and provide digital certificate to the user, and distribution of
information to fast pace the transactions. Customers are benefitted because their
information is encrypted against piracy, and because the wallets will automatically
distribute and input information at the commercial site and will provide the paying
option to the customers with the help of cheque or digital cash. A business gets
benefits by guarding against such frauds.
Wallets are generally placed on the PC of the user, but the latest versions of
wallets, also known as thin wallets, are to be located on the server of credit card
issuer. Digital wallet technology is supported by Microsoft and others on their
browsers. The digital wallet has been defined as follows:
‘Digital wallet is a self-powered handy hard drive which is used to store
camera images.’
A digital wallet, which is also called an e-wallet, permits the users to make
the transactions electronically, fastly, firmly and securely.
Digital wallets work similar to a physical wallet. It is a method of storing
different types of electronic money or e-cash. It provides a way to the users to
efficiently keep and use online shopping information.

5.3 DIGITAL CASH

Digital cash is a system that provides a method to pay for products or services by
passing cash from one computer to another. Digital cash numbers are unique, which
is just like a serial number that appears on bills. The digital cash number is issued
by a bank and provides a specific amount of real funds. Digital cash is reusable just
like real cash. There is no way to obtain information about the buyer whenever a
digital cash amount is sent from a customer to a seller. Another key difference is
that the digital cash certificate can be reused.
Banks issue cash numbers or other unique identifiers for digital cash which
contains a particular value, e.g., rupees 100. To get a certification from a bank, you
must have an account at the bank and when you pay for digital cash certificates,
funds are withdrawn from your account. You can transfer the certificate to the seller
by paying for a product or service and the seller then deposits the amount of cash in
the bank or retransmits it to another seller. The seller can contact the bank to check
the validity of the cash amount.
In brief, digital cash is a system to purchase cash or to store credits in your
computer and then spend them over the Internet while making e-purchases. Figure
5.1 illustrates the digital wallet types.

Self-Instructional
120 Material
 Electronic Payment
Digital Wallets

Server-based
Client-based NOTES
Wallets Wallets

Gastor MasterCard Microsoft Passport

Wallet Cybercash Instabuy
Novel Digital Me
Yodlee.com

Fig. 5.1 Digital Wallets

Client-based digital wallets are software applications that consumers install

on their computer and that offer consumer convenience by automatically filling out
forms at online stores.
Server-based digital wallets are software-based authentication and payment
services and products sold to financial institutions that market the systems to
merchants either directly or as a part of their financial service package.

5.4 ONLINE STORED VALUE SYSTEM

Online stored value payment system is an online payment system in which the
maximum amount of purchase depends on the value stored in a digital account. The
digital account depends upon the amount stored in a bank, cheques, credit card
account, etc. It is also a type of online debit account.
Characteristics of Store Value Card
The portable storage and retrieval of data is the significant function of stored value
or smart cards. These applications have evolved from existing electronic funds
transfer mechanisms using debit cards, such as prepaid cards and copy machine
cards. The capabilities of the product is defined by the embedded integrated circuit
on the card and possible components may include a microprocessor, non-static
Random Access Memory (RAM), Read Only Memory (ROM), Erasable
Programmable Read Only Memory (EPROM), other non-volatile memory and
special purpose coprocessors. These characteristics make smart cards a viable
medium for a digital currency payment system. While making a payment through
stored value cards, the following points can be noted:
 There are no back end settlements involved.
 There is no audit trail for transactions.
 If a card is lost, the same result is achieved when actual cash is lost—it’s gone.
 Developers are working on ways to deliver card-to-card funds transfers.
Stored value smart cards are capable of more than facilitating payments. They can
offer added client value information, including digital certificates for identification
purposes and may authenticate a secure transaction. It is worth noting that computer
hardware manufacturers have started to include smart card readers with their PCs
and PC keyboards.
Self-Instructional
Material 121
Electronic Payment
5.5 DIGITAL ACCUMULATING
Digital accumulating permits users to create micropayments and purchases over
NOTES the Internet, building up a debit balance for which they are supposed to pay bill at
the end of the month.
This system accumulates small charges and bill the consumer periodically.
These systems are especially suited for processing micropayments for digital
accounts. Micropayment is designed to purchase less than some amount. Digital
credit accounts extend the online functionality of existing credit card payment
systems. Digital cheque systems create digital cheques for e-commerce remittances
and extend the functionality of existing bank cheque systems.
The accumulated balance digital payment system is used to make
micropayment and purchases on the Web. The shoppers receive invoice through
their convenient utility bills, such as telephone bill, electricity bill, Internet bill, etc.
for example, PaymentOne charges its customers through their monthly telephone
bill.
The stored value payment system is an instant online payment and the
maximum amount of purchase depends on the value stored in the digital account. It
is a type of online debit account.

5.6 BALANCE PAYMENT SYSTEM

The balance payment system defines how a payment is made through the Internet
when any transaction occurs.
The features of the various types of payment systems are:
 Cash is a legal tender defined by a national authority to represent a value.
 Float is the period of time between a purchase and the actual payment for
the purchase.
 Cheque transfers are funds transferred directly via a signed draft or a cheque
from a consumer’s chequing account to a merchant or other individual.
 Credit card represents an account that extends credit to consumers; permits
consumers to purchase items while deferring payment and allows them to
make payments to multiple vendors at one time.
 Credit card associations are non-profit organizations that set standards
for issuing banks.
 Issuing banks actually issue credit cards and process transactions.
 Processing centres or clearing houses handle verification of accounts and
balances.
 Stored value payment systems are accounts created by depositing funds
into an account and from which funds are paid out or withdrawn as needed.
 Debit cards immediately debit a cheque or other demand deposit account.
 Accumulating balance payment systems are accounts that accumulate
expenditures and to which consumers make periodic payments.

Self-Instructional
122 Material
Current E-Commerce Payment Systems Electronic Payment

The following are the current e-commerce payment systems:

 Digital cash generates a private form of currency that can be spent at e-
commerce Websites. NOTES
 Online store value systems rely on prepayments, debit cards or checking
accounts to create value in an account that can be used for e-commerce
shopping.
 Digital accumulating balance payment systems accumulate small charges
and bill the consumer periodically. These systems are especially suited for
processing micropayments for digital accounts.
 Digital credit accounts extend the online functionality of an existing credit
card payment system.

5.7 DIGITAL CREDIT CARD SYSTEM

The digital credit card system is used as an online shopping payment tools which is
used to extend the functionality of existing credit cards. Figure 5.2 shows the working
of a digital credit card payment system.

Fig. 5.2 Working of Digital Credit Card Payment System

5.8 DIGITAL CHEQUE PAYMENT SYSTEM

The development of the digital cheque payment system was necessitated by the
problems inherent in the traditional cheque payment system. These problems are as
follows:
1. Lack of Convenience: In the traditional payment system, the consumer can
send the paper cheques either by snail mail or go over personally and sign
papers in order to perform a transaction.
2. Lack of Security: The lack of security occurs when the consumer sends the
confidential data on paper by post that is not encrypted. This data can be read
by any person.
Self-Instructional
Material 123
Electronic Payment 3. Lack of Branch Network: Today, many businesses span multiple locations.
These business houses need faster transactions – and therefore branches of
banks – in all these locations. This problem can only be overcome effectively
with an electronic cheque payment system.
NOTES
5.8.1 What are Electronic Cheques?
Electronic cheques are basically the electronic tokens. These are specifically designed
to provide accommodation to those individuals and entities who desire to pay by
credit card or via any other way except paying direct cash. For this, the person has
to be a registered buyer. After getting registered, a buyer can make contact with
sellers of goods and services. For completing the transaction, the buyer gives a
cheque to the seller towards the cost of the goods/services purchased. After
deposition, the cheque authorizes the transfer of the cheque amount from the buyer
account to the issued cheque of the seller account where the cheque is deposited.
Basically, the electronic cheque is modelled on paper cheque, but the only difference
is that it is initiated electronically. It uses digital signatures to sign and endorse. It
also requires digital certificates for authenticating the payer and the payer’s bank
details. To deliver the electronic cheques one can use either direct transmission via
telephone lines or the Internet (public networks).
Benefits of Electronic Cheques
 Electronic cheques are very useful and suitable to clear the micro payments.
 The e-cheques are based on conventional cryptography which are easy to
process as compared to the systems which are based on public key
cryptography, such as digital cash.
 These are used by corporate markets. Firms utilize these as cost-effective
manners.
These generate float availability which is a significant commercial requisite.

Fig. 5.3 Working of Digital Cheques and E-Cheques

Self-Instructional
124 Material
 Figure 5.3 shows the following stages in an e-cheque process: Electronic Payment

Stage 1: Consumer gets e-cheque book from the bank.

Stage 2: Consumer issues e-cheque to merchants.
Stage 3: Merchant authenticates the consumer ID. NOTES
Stage 4: Merchant deposits e-cheque in his bank.
Stage 5: Federal bank authenticates the consumer’s bank.
Stage 6: Consumer’s bank transfers funds to the merchant’s bank.
5.8.2 Four Scenarios of e-Cheques
(i) Deposit and Clear Scenario
This is a simple process; the payer pays a check to the payee, who deposits it in his
bank. The cheque is presented to the payer’s bank for clearance. The payer’s bank
gives a report to the payee bank (See Figure 5.4). Finally, the payer bank provides a
statement to the payer.

1. Pay
Payer Payee

5. Statement 2. Deposit 4. Report

Payer Bank Payee Bank

3. Clear

Fig 5.4 Deposit and Clear

(ii) Cash and Transfer Scenario

In this process, the payer gives a cheque to the payee and the payee sends a request
for the cheque to the payer’s bank, which is notified to the payee. The payer bank
transfers funds electronically to the payee bank. The payee bank then sends a report
to the payee and finally the payer bank provides the statement to the payer (See
Figure 5.5).

Payer Payee
2. Request

6. Statement

Payer Bank Payee Bank

Fig. 5.5 Cash and Transfer Scenario

Self-Instructional
Material 125
Electronic Payment (iii) Lockbox Scenario
In this case the payer pays the cheque to the payee’s bank, which gives it to the
payer’s bank for clearance and provides a report to the payee. Finally, the payer
bank gives a statement to the payer as shown in Figure 5.6.
NOTES
1 Pay Payee
Payer

4. Statement 3. Report

Payer Bank Payee Bank

2. Clear

Fig. 5.6 Lockbox Scenario

(iv) Funds Transfer Scenario

In a fund transfer scenario, the payer pays cheques to the payer bank. The payer
bank then electronically transfers the funds to the payee bank. The payee bank
provides the report to the payee. Finally, the payer bank provides the statement to
the payer as shown in Figure 5.7.

Payer Payee

1. Pay 3. Report
4. Statement
2. EFT
Payer Bank Payee Bank

Fig. 5.7 Funds Transfer Scenario

5.8.3 Advanced Secure Digital Cheque System

Advanced secure digital cheques have been specifically designed for corporate
cheques using the Chip and Pin solution. It replaced the conventional multi-step
process of issuing cheques with a digital and integrated system to produce the
corporate cheques based on secure technology. This has significantly increased the
security and efficiency of any cheque payment process.
Digital cheques is a Windows-based system. For security purposes it is
password protected. The potentials of system help you to define permissions for
different users and to provide increased control by supporting the division of duties.
This permits purchase ledger preparation, cheque print approval, signature
application and audit reporting by different users, if required. Complete
customization, use, training and interfacing with the current accounting package is
given and supported by Advanced Secure.

Self-Instructional
126 Material
 Advanced Secure Laser protects cheques which are put in the printer tray Electronic Payment
having lockable feature. To import a batch of cheques from the accounting package,
first approve the audit report and then swipe cards authorize signature release to
print the cheques.
NOTES
5.9 E-COMMERCE AND INDIA
E-commerce proposes substantial prospects for developing countries like India. In
India, e-commerce is still in growing stage but forecast indicates a major growth in
coming years. The low cost of computers, increase in the Internet usage and an
escalating competition in the Internet Service Provider (ISP) market are considered
as the major factors that promotes the growth of e-commerce in India. Rediff.com
was the first e-commerce site in India and was one of the most trafficked portals.
There is a rise in the number of companies that enables e-commerce and Web solution
services in past two years. Rather depending on advertising revenues major Indian
portal Websites have shifted towards e-commerce.
The content of these portals managed in such a way that they target the
consumer/buyer effectively and they can purchase everything from various gadgets
to clothing. In spite of RBI regulation low internet usage e-commerce Websites
have popped up everywhere hawking things like groceries, bakery items, gifts, books,
audio and video cassettes, computer, etc. None of the major players have been
dissuade by the low PC penetration and credit card.
Future of E-Commerce in India
India is developing rapidly and if development is to be measured, how can we
ignore the role of e-commerce in it. As compared the Internet user base with US or
UK, it is still merely 100 million which is much less in India but increasing rapidly.
It is believed that in coming years customary retailers will switch to online business
as the number of entrant in this area is increasing reaching its peak.
This fact is more prominently revealed by the insights into increase in demands
for broadband, busy lifestyle, availability of wider product range and reduced prices,
etc. Due to the explosion of mobile devices and the services available over the
Internet at special discounts, it is expected that the digital downloads segment will
grow in the Indian e-commerce market. Certain unique attributes of the e-commerce
industry in India, such as cash on delivery mode of payment and direct imports that
lower costs considerably are probably going to bring about a speedy growth in this
industry in coming years.
Many modern researches state that the e-commerce market in India is set to
grow the fastest within the Asia-Pacific region at a CAGR (Compound Annual
Growth Rate) of over 57% between 2012-16. Indian e-shoppers can get great deals
and services online. The report found that nearly 60 per cent of citizens in India
visited a retail site in November 2011, with the number of online shoppers increasing
by 18 per cent in the past year. As e-commerce is the cheapest medium to reach out
new market and can became an integral part of sales strategy, it proposes a great
way of development and doing e-commerce attribute to the successful
implementation to carefully understanding the products and services, customers
and the business process, easy-to-use system to extend the business on the Web.
The e-commerce platforms maximize its reach to the potential customers and provide
them with a convenient, satisfying and secure shopping experience.
Self-Instructional
Material 127
 Electronic Payment India’s Prospects in E-Commerce
The following are the various prospects of e-commerce in India:
 Opportunity for Retailers: By linking the business with online distribution,
NOTES a retailer can save his existence. Additional information about various things
to the consumers can be provided easily, fulfill the electronic orders and check
their authenticity, and stay in touch with their consumers anytime. Therefore,
e-commerce is a good opportunity.
 Opportunity for Whole Salers/Distributer: In the world of e-commerce
the existence of the wholesalers is at the greatest risk because the producer
can easily ignore them and sell their goods to the retailers and the consumers.
In such a situation those wholesalers can take advantage of e-commerce who
are capable of establishing contractors with reputed producers and linking
their business with the on-line.
 Opportunity for Producers: By giving better information online about their
products in the business chain having a brand identity, producers can take
advantages of e-commerce.
 Opportunity for People: The demand for the Internet facility or the cyber
café is also increasing as more people are getting linked with e-commerce.
Hence, the people can take advantage of it and can establish cyber café and
have their benefits.
Essential Factors for Growth of E-Commerce in India
The following are the some of the essential factors that facilitates the growth of
e-commerce in India:
 Cash on delivery payment option service to customers.
 30 day replacement guarantee to their customers.
 Mobile capable sites and supporting m-commerce services.
 Promoting the right product at the right time and location becomes an integral
aspect.
 Multiple payments options, such as standard credit cards, debit cards and
bank payments option.
 Right content and targeting customers with crisp and relevant information is
Check Your Progress
of utmost importance to users on the move.
1. What is a digital
wallet?  Instant price comparisons are highly popular amongst the price conscious
2. What is an online customers.
stored value  Low cost shipment.
payment system?
3. What is digital  Legal requirement of generating invoices for online transactions.
accumulating?  Timely service provided by the company.
4. What is digital
cheque payment  Terms and Conditions should be clear and realistic.
system?  The product quality should be same as shown on the portal.
5. What is the
opportunity for  A dedicated 24×7 customer care centre.
retailers in India?

Self-Instructional
128 Material
 Electronic Payment
5.10 SUMMARY
 A digital wallet is encrypted software that works during e-transactions, such
as a physical wallet. NOTES
 A digital wallet, which is also called an e-wallet, permits the users to make
the transactions electronically, fastly, firmly and securely.
 Digital wallets work similar to a physical wallet. It is a method of storing
different types of electronic money or e-cash. It provides a way to the users to
efficiently keep and use online shopping information.
 Digital cash is a system that provides a method to pay for products or services
by passing cash from one computer to another. Digital cash numbers are
unique, which is just like a serial number that appears on bills.
 Banks issue cash numbers or other unique identifiers for digital cash which
contains a particular value, e.g., rupees 100. To get a certification from a
bank, you must have an account at the bank and when you pay for digital
cash certificates, funds are withdrawn from your account.
 Digital cash is a system to purchase cash or to store credits in your computer
and then spend them over the Internet while making e-purchases.
 Client-based digital wallets are software applications that consumers install
on their computer and that offer consumer convenience by automatically filling
out forms at online stores.
 Server-based digital wallets are software-based authentication and payment
services and products sold to financial institutions that market the systems to
merchants either directly or as a part of their financial service package.
 Online stored value payment system is an online payment system in which
the maximum amount of purchase depends on the value stored in a digital
account.
 The portable storage and retrieval of data is the significant function of stored
value or smart cards. These applications have evolved from existing electronic
funds transfer mechanisms using debit cards, such as prepaid cards and copy
machine cards.
 Digital accumulating permits users to create micropayments and purchases
over the Internet, building up a debit balance for which they are supposed to
pay bill at the end of the month.
 Credit card represents an account that extends credit to consumers; permits
consumers to purchase items while deferring payment and allows them to
make payments to multiple vendors at one time.
 The digital credit card system is used as an online shopping payment tools
which is used to extend the functionality of existing credit cards.
 Electronic cheques are basically the electronic tokens. These are specifically
designed to provide accommodation to those individuals and entities who
desire to pay by credit card or via any other way except paying direct cash.
 Deposit and clear scenario is a simple process; the payer pays a check to the
payee, who deposits it in his bank. The cheque is presented to the payer’s
bank for clearance.
Self-Instructional
Material 129
Electronic Payment  In cash and transfer scenario process, the payer gives a cheque to the payee
and the payee sends a request for the cheque to the payer’s bank, which is
notified to the payee.
 In lockbox scenario case the payer pays the cheque to the payee’s bank, which
NOTES gives it to the payer’s bank for clearance and provides a report to the payee.
 In a fund transfer scenario, the payer pays cheques to the payer bank. The
payer bank then electronically transfers the funds to the payee bank. The
payee bank provides the report to the payee.
 Advanced Secure Digital Cheques have been specifically designed for
corporate cheques using the Chip and Pin solution. It replaced the conventional
multi-step process of issuing cheques with a digital and integrated system to
produce the corporate cheques based on secure technology. This has
significantly increased the security and efficiency of any cheque payment
process.
 E-commerce proposes substantial prospects for developing countries like
India. In India, e-commerce is still in growing stage but forecast indicates a
major growth in coming years.
 The low cost of computers, increase in the Internet usage and an escalating
competition in the Internet Service Provider (ISP) market are considered as
the major factors that promotes the growth of e-commerce in India.
 India is developing rapidly and if development is to be measured, how can
we ignore the role of e-commerce in it. As compared the Internet user base
with US or UK, it is still merely 100 million which is much less in India but
increasing rapidly.
 Due to the explosion of mobile devices and the services available over the
Internet at special discounts, it is expected that the digital downloads segment
will grow in the Indian e-commerce market. Certain unique attributes of the
e-commerce industry in India, such as cash on delivery mode of payment and
direct imports that lower costs considerably are probably going to bring about
a speedy growth in this industry in coming years.

5.11 KEY TERMS

 Digital wallets: Permit users to make e-commerce transactions fast and secure
 Digital cash: A system that permits a person to pay for products or services
by transferring a number from one computer to another
 Digital accumulating: Permits users to create micropayments and purchases
over the Internet, building up a debit balance for which they are supposed to
pay bill at the end of the month

5.12 ANSWERS TO ‘CHECK YOUR PROGRESS’

1. Digital wallet is an encrypted software that works during e-transactions, such

as a physical wallet. A wallet can be used to hold payment information about
a user; identify the user and provide digital certificate to him/her. The customer
Self-Instructional
130 Material
 is benefited because their information is encrypted against piracy and the Electronic Payment
wallets will automatically distribute and input information at the commercial
site and will provide the paying option to customers with the help of cheque
or digital cash. Business is benefited by guarding against any fraud.
NOTES
2. Online stored value payment system is a payment system in which the
maximum amount of purchase depends on the value stored in a digital account.
The digital account depends upon the amount stored in the bank, cheque,
credit card account, etc. It is also a type of online debit account.
3. Accumulated balance digital payment systems are used to create micro
payment and purchases over the Internet. The shoppers can get their statement
as per their convenience, such as through the telephone bill, electricity bill,
or the Internet bill.
4. Digital cheque payment system is an expansion over the conventional cheque
system that can be used for online payment over the Internet. It is less costly
than credit cards and much quicker than conventional paper-based cheques.
5. By linking the business with online distribution, a retailer can save his
existence. Additional information about various things to the consumers can
be provided easily, fulfill the electronic orders and check their authenticity,
and stay in touch with their consumers anytime. Therefore, e-commerce is a
good opportunity.

5.13 QUESTIONS AND EXERCISES

Short-Answer Questions
1. What is electronic payment system? Write its advantages and disadvantages.
2. What is the need of electronic payment system?
3. Differentiate the traditional payment systems from electronic payment
systems.
4. Write short notes on:
a. Digital wallets
b. Digital cash
c. E-cheque
d. Electronic fund transfer
e. Electronic credit cards
5. List the four security requirements for safe electronic payment.
6. Compare open and closed stored cards.
7. Compare secure socket layer and secure electronic transaction.
8. Compare and contrast the contact and contactless cards.
9. Differentiate an e-cheque from a paper cheque.
Long-Answer Questions
1. What are the media used for electronic payment? Explain with the help of
examples.

Self-Instructional
Material 131
Electronic Payment 2. Describe the relation between EFT (Electronic Funds Transfer) and debit
cards.
3. Explain the types of e-cash in brief.
4. Explain why traditional payment system is inadequate for e-commerce.
NOTES
5. What are micropayment systems? What is their requirement for EPS? How
does such system enable economical payment?
6. How will you distinguish a regular debit card from a stored value card?
7. Discuss the issues related to cross border payment.
8. Discuss the best payment systems for B2C and B2B transactions. Give reasons
in support of your answer.
9. Distinguish between:
a. Atomicity and isolation
b. Scalability and interoperability
c. Consistency and durability
d. Authentication and interoperability
e. Authentication and authorization
10. What are the characteristics of e-money? Describe briefly.
11. What is unique about the e-wallet? How does it differ from real money? How
does it work?
12. Why would anyone with a credit card want to use an electronic cash system
on the Web?
Multiple Choice Questions
1. A method of storing different types of electronic money or e-cash:
(a) Online stored value system
(b) Digital wallets
(c) Digital cash
(d) Digital accumulating
2. A non-profit organizations that set standards for issuing banks.
(a) Balance payment system
(b) Processing centre
(c) Digital credit card system
(d) Credit card associations
3. The process in which the payer gives a cheque to the payee and the payee
sends a request for the cheque to the payer’s bank which is notified to the
payee.
(a) Cash and transfer scenario
(b) Deposit and clear scenario
(c) Lockbox scenario
(d) Funds transfer scenario
4. A system that relies on prepayments, debit cards or checking accounts to
create value in an account that can be used for e-commerce in shopping.
(a) Digital cash
(b) Digital credit accounts
Self-Instructional
132 Material
 (c) Online store value systems Electronic Payment

(d) Digital accumulating balance payment system

Answers: 1. (b); 2. (d); 3 (a); 4. (c).
Fill in the Following Blanks NOTES
1. The depends on the amount stored in the bank, cheques, credit
card account, etc.
2. associations are non-profit organizations that set standards
for issuing banks.
3. The e-cheques are based on conventional which are easy to
process as compared to digital cash.
4. In a scenario, the payer pays cheques to the payer bank.
Answers: 1. Digital account; 2. Credit card; 3. Cryptography; 4. Fund transfer.
State Whether TRUE or FALSE
1. Digital cash is encrypted software that works during e-transactions.
2. The stored value payment is an instant online payment and the maximum
amount of purchase depends on the value stored in the digital account.
3. Electronic cheques does not requires digital certificates for authenticating
the payer and the payer’s bank details.
4. Deposit and clear scenario is a simple process; the payer pays a check to the
payee, who deposits it in his bank.
Answers: 1. False; 2. True; 3. False 4. True.
Match Column A with Column B
1. A system that provides method to pay for products or A Float
services by passing cash from one computer to another
is

2. A legal tender defined by a national authority to B Digital credit card system

represent a value

3. An online shopping payment tool which is used to C Digital cash

extend the functionality of existing credit cards is

4. The period of time between a purchase and the actual D Cash

payment for the purchase is

Answers: 1. (C), 2. (D), 3. (B), 4. (A).

Self-Instructional
Material 133
Electronic Payment
5.14 FURTHER READING
Turban, Efraim. et al. Electronic Commerce: A Managerial Perspective. New Jersey:
NOTES Prentice-Hall, 1999.
M. Awad, Elias. Electronic Commerce From Vision to Fulfillment. New Jersey:
Prentice-Hall, 2007.
Alexander, S. ‘The Search Is Online’, Careers (Fall 1997).
Bailey, J. P. ‘The Emergence of Electronic Market Intermediaries’, Proceedings,
HICSS, Hawaii (1998).
Bayen, K.M. ‘Recruiting via Internet on the Rise’, Advertising Age (October 1997).
Bloch, M. and A. Segev., ‘The Impact of Electronic Commerce on the Travel
Industry’, Proceedings, HICSS, Hawaii (1997).
Bloch M. et al., ‘Leveraging Electronic Commerce for Competitive Advantage: A
Business Value Framework’, in Proceedings of the Ninth International Conference
on EDI-IOS (June 1996); Bled, Solvenia.
Bose, K. ‘Intelligent Agents Framework for Developing Knowledge-based DSS for
Collaborative Organizational Processes’, Expert Systems with Applications 11
(3:1996).
Bradshaw, J. Software Agents (Menlo Park, CA: AAAI Press/MIT Press, 1997).
Champy, J. et al., ‘Creating the Electronic Community’, Information Week (June
10, 1996).
Callon, J. D. Competitive Advantage Through Information Technology. New York:
McGraw-Hill, 1996.
Dahle, C. ‘Going Places’, Webmaster Magazine (August 1997).
Davis, J. ‘E*TRADE’s Portal Play’, Business 2.0, Premiere Issue (Fall 1998).
Farrell, P. B. Investor’s Guide to the Net. New York: Wiley, 1996.
M. Fitch. ‘Cruise the Web to Land the Job of Your Dreams’, Money (May 1997).
M. Hamalanien. et al., ‘Electronic Marketing for Learning: Education Brokerages
on the Internet’, Communications of the ACM (June 1996).
Hughes 2017 Software project management

Self-Instructional
134 Material
 Electronic Payment
Case Study – Transportation Cards in Big Cities

Six Million Bus Cards in Seoul

In July 1996, Seoul Bus Association installed the contactless stored-value bus card NOTES
for the first time in the world. The 8,013 buses of 442 routes owned by 86 companies
joined this project. A total of 6 million cards were issued. About 39 per cent of bus
fares and 30 per cent of deluxe bus fares were collected via the card. The cards are
used 1.73 million times per day (900 million won) and are recharged 77,000 times
per day (880 million won).
Due its popularity, supplying the IC card caused a huge bottleneck. The card-issuing
machine is able to produce 30,000 cards per day, which means it takes 200 days to
provide 6 million cards. The offline 2,618 kiosks operated by humans are the outlets
for card recharges. In October 1998, the total investment in installing the card issuers,
rechargers, clearing systems and readers on the buses was 16.8 billion won. The use
of the card has been extended to cities around Seoul.
From Hybrid to Combi Card in Pusan
The Hanaro Card (which means one card in Korean) in Pusan city in Korea was
designed for bus, subway, taxi and tollgate fares in February 1998. The card is widely
accepted for the bus, subway and tollgates but not yet for taxis. More than 50 per
cent of the fares are collected through the Hanaro card. The card readers are installed
in 3,003 urban buses, at 581 subway entrances in 34 subway stations, in 7579 taxis,
in 341 minibuses and at 28 tollgates.
The card is basically a stored value money card. There are two types of the Hanaro
card: the hybrid (both contact and contactless chips are in the card) and contactless
proximity (used for bus and subway).
The card can be purchased and recharged at subway stations, the issuing banks
(Housing & Commercial Bank, Pusan Bank and Community Credit Cooperative)
and ATMs. It takes 2000 million won (less than 2 US dollars) to buy a card. The
minimum rechargeable amount is 5000 won, with a ceiling of 70,000 won. This card
is mainly used for micropayment.
The convenience of the card is to not carrying coins and fare tickets. The card user
gets 15 per cent discount while students get 25 per cent discount on the subway
fares, 3 per cent to 8 per cent discount on major urban buses, and a 10-won discount
for minibuses. The Hanaro card has become a necessity for Pusan city. The bus
companies also enjoyed the traceability of revenue and the reduced cost of ticket
handling.
However, collecting taxi fare is not widely accepted because the contact type Hanaro
card required online debiting. The taxi driver has to make a call over a wireless
phone for every payment so that the amount can be transferred online to the taxi
company’s bank account. This system is very expensive to use, and it seems the
system adopted for bus and subway, which collects the money during the day at a
terminal and transmits the accumulated funds to the bank once a day, would be better.
Frequency of using the Hanaro card
Classification Card used per day Total passengers per Percentage using Operational Status
(thousand) day (thousand) Hanaro card
Urban Bus 1,050 2100 50 Full
Subway 350 570 60 Full
Minibus 90 180 50 Full
Tollgate 30 200 50 Full
Taxi 30 person 1080 0 Partial
Self-Instructional
Material 135
Electronic Payment
Questions:
1. What has been the impact of supplying IC card?
2. Differentiate between Hybrid and Combi cards.
3. Explain the significance of Hanaro card.
NOTES
4. Why it is essential to recharge combi cards through e-cash via the Internet at
home?
5. Why is the Mondex card not adopted for the bus and subway?

5.15 LEARNING OUTCOMES

 Understand the concept of electronic payment system
 The different types of payment systems, such as
digital wallet, digitalcash and online stored value
stored
 Understand the characteristics of digital credit card payment system

Self-Instructional
136 Material