Electronic commerce (e-commerce) is the act of doing business electronically. This means that all your transactions are paperless and you use electronic means such as – EDI (electronic data interchange), electronic mail, bulletin boards, fax transmissions, electronic fund transfers, and the Internet.
E-commerce, or simply electronic commerce, is the process used to distribute, buy, sell, or market goods, and services, and the transfer of funds online, through electronic communications, or networks.
E-commerce allows people to carry out business transactions without the barriers of time or distance. One can log on to the Internet at any point of time, be it day or night and purchase or sell anything one desires with a single click of the mouse.
E-commerce is ideal for niche products. Customers for such products are usually few, but in the vast marketplace, i.e., the Internet, even niche products can generate viable volumes.
According to Forrester, online retail sales will grow to $250 billion by 2014. This statistical information alone gives us an insight on how good e-commerce can turn out to be in the years ahead.
E-Commerce: Meaning, Features, Types, Steps, Applications, Advantages, Disadvantages and Future Scenario
Contents:
- Introduction to E-Commerce
- Meaning of E-Commerce
- Features of E-Commerce
- Strategy-Shaping Characteristics of the E-Commerce Environment
- Characteristics of the E-Commerce Environment
- Types of E-Commerce
- Steps Involved in E-Commerce
- Applications of E-Commerce
- Ensure Security and Safety of E-Commerce
- Security Problems Related to E-Commerce
- Advantages of E-Commerce
- Drawbacks of E-Commerce
- Limitations of E-Commerce
- Problems and Negative Aspects of E-Commerce
- Threats to E-Commerce
- Solutions to E- Commerce
- Key Drivers in Indian E-Commerce
- Future Scenario of E-Commerce
Ecommerce – What is E-Commerce
E-commerce, or simply electronic commerce, is the process used to distribute, buy, sell, or market goods, and services, and the transfer of funds online, through electronic communications, or networks. E-commerce allows people to carry out business transactions without the barriers of time or distance. One can log on to the Internet at any point of time, be it day or night and purchase or sell anything one desires with a single click of the mouse.
E-commerce is ideal for niche products. Customers for such products are usually few, but in the vast marketplace, i.e., the Internet, even niche products can generate viable volumes. According to Forrester, online retail sales will grow to $250 billion by 2014. This statistical information alone gives us an insight on how good e-commerce can turn out to be in the years ahead.
For more than two decades, organizations have conducted business electronically by employing a variety of electronic commerce solutions. In the traditional scenario, an organization enters the electronic market by establishing trading partner agreements with retailers or wholesalers of their choosing. These agreements may include any items that cannot be reconciled electronically, such as terms of transfer, payment mechanisms, or implementation conventions. After establishing the proper business relationships, an organization must choose the components of their electronic commerce system.
Although these systems differ substantially in terms of features and complexity, the core components typically include:
i. Workflow Application:
It forms interface that aids the user in creating outgoing requests or viewing incoming requests. Information that appears in these forms may also be stored in a local database.
ii. Electronic Data Interchange (EDI) Translator:
A mapping between the local format and a globally understood format.
iii. Communications:
A mechanism for transmitting the data- typically asynchronous or bisynchronous.
iv. Value-Added Network (VAN):
A store and forward mechanism for exchanging business messages using an electronic commerce system, a retailer may maintain an electronic merchandise inventory and update the inventory database when items are received from suppliers or sold to customers.
E-Commerce – Meaning
Electronic commerce (e-commerce) is the act of doing business electronically. This means that all your transactions are paperless and you use electronic means such as – EDI (electronic data interchange), electronic mail, bulletin boards, fax transmissions, electronic fund transfers, and the Internet.
E-commerce basically began (although debated) in 1994 when Jeff Bezos started Amazon (dot)com out of his own garage. Well-known e-commerce stores include sites like eBay, Dell, Wal-Mart and numerous others. Since 1994, businesses of all shapes and sizes have begun launching or expanding their online presence. At any given time, there are approximately 8 million consumers worldwide that actively shop and buy through web-based stores or retailers. Online studies have claimed that online retail revenues will surpass the quarter-trillion-dollar mark soon.
Many major retail organizations and manufacturers have online retail stores. Companies such as Amazon(dot)com and Firstandsecond(dot)com, which helped pioneer the retail e-commerce concept, are now being followed by bricks- and-mortar and catalogue retailers like J. Crew, which are expanding retail e-commerce into new markets.
India’s retail market is estimated at $470 billion in 2011 and is expected to grow to $850 billion by 2020 with estimated CAGR of seven per cent. Overall, e-commerce market is expected to reach US $24 billion by the year 2015 with both online travel and e-tailing contributing equally. Another big segment in e-commerce is mobile/ DTH recharge with nearly one million transactions daily by operator websites.
India’s e-commerce market was worth about $3.8 billion in 2009, and rose to $12.6 billion in 2013. In 2013, the e-retail segment was worth US $2.3 billion. About 70% of India’s e-commerce market is travel related. According to Google India, there were 35 million online shoppers in India in 2014 and is expected to cross 100 million mark by end of 2016.
With global growth rate of 8-10%, electronics and apparel are the biggest categories in terms of sales. As of Q1 2015, six Indian startup companies, that is, Flipkart, Snapdeal, InMobi, Quikr, OlaCabs, and Paytm have managed to enter the billion dollar club.
E-Commerce – Features
i. Business conducted through the Internet
ii. Use of electronic means and platforms to conduct a company’s business
iii. Electronic trading of goods, services, data, images, information of various kinds
iv. Paperless exchange of business information
v. Carried out by either pure click companies or brick and click companies
vi. Primary aim to attract customers anywhere on earth.
E-Commerce – Strategy-Shaping Characteristics of the E-Commerce Environment
The coming of e-commerce has changed the character of the market, created new driving forces and key success factors and bred the formation of new strategic groups.
The following features stand out as strategy-shaping characteristics of the e-commerce environment:
i. The internet makes it feasible for companies everywhere to compete in global markets.
ii. Competition in an industry is greatly intensified by the new e-commerce strategic initiatives of existing rivals and by the entry of new, enterprising e-commerce rivals.
iii. Entry barriers into the e-commerce world are relatively low.
iv. Online buyers gain bargaining power because they face far fewer obstacles in comparing the products, prices, and shipping time of rival vendors.
v. The internet makes it feasible for companies to reach beyond their borders to find the best suppliers and, further, to collaborate closely with them to achieve efficiency gains and cost savings.
vi. Internet and PC technologies are advancing rapidly, often in uncertain and unexpected directions.
vii. The internet results in much faster diffusion of new technology and new ideas across the world.
viii. The e-commerce environment demands that companies move swiftly.
ix. E-commerce technology opens up a host of opportunities for reconfiguring industry and company value chains.
x. The internet can be an economical means of delivering customer service.
xi. The capital for funding potentially profitable e-commerce businesses is readily available.
xii. The needed e-commerce resource in short supply is human talent-in the form of both technological expertise and managerial know-how.
E-Commerce – Characteristics of the E-Commerce Environment
The impact of the Internet and the rapidly emerging E-commerce environment is substantial and widespread. The online network is changing everything. Growing use of the Internet by businesses and consumers reshapes the economic landscape and alters traditional industry boundaries.
Characteristics of E-commerce environment changing competitive scenario are as under:
i. The Internet makes it feasible for companies everywhere to compete in global markets. This is true especially for companies whose products are of good quality and can be shipped economically.
ii. There are new E-Commerce strategic initiatives of existing rivals and new entrants in form of E-Commerce rivals. The innovative use of the Internet adds a valuable weapon to the competitive arsenal of rival sellers, giving them yet another way to jockey for market position and manoeuvres for competitive advantage.
iii. Entry barriers into the E-Commerce world are relatively low. Relatively low entry barriers explain why there are already hundreds of thousands of newly formed E-Commerce firms, with perhaps millions more to spring up around the world in years to come. In many markets and industries, entry barriers are low enough to make additional entry both credible and likely.
iv. Increased bargaining power of customers to compare the products, prices and other terms and conditions of rival vendors. Online buyers gain bargaining power because their confront far fewer obstacles to comparing the products, prices, and shipping time of rival vendors.
v. Possibility for business organizations to locate the best suppliers across the world to gain cost advantage. The Internet makes it feasible for companies to reach beyond their borders to find the best suppliers and, further, to collaborate closely with them to achieve efficiency gains and cost savings.
Organizations can extend their geographic search for suppliers and can collaborate electronically with chosen suppliers to systemise ordering and shipping of parts and components, improve deliveries and communicate speedily and efficiently.
vi. Internet and PC technologies are advancing rapidly, often in uncertain and unexpected directions. Such changes are often bringing in new opportunities and challenges.
vii. Faster diffusion of new technology and new ideas across the World. Organizations in emerging countries and elsewhere can use the internet to monitor the latest technological developments and to stay abreast of what is transpiring in the developed markets.
viii. The E-Commerce environment demands that companies move swiftly. In the exploding E-Commerce world, speed is a condition of survival. New developments occur on one front and then on another regularly.
ix. E-commerce technology opens up a host of opportunities for reconfiguring industry and company value chains. Using the internet to link the orders of customers with the suppliers of components enables just-in-time delivery to manufacturers, slicing inventory costs and allowing production to match demand.
x. The Internet can be an economical means of delivering customer service. Organizations are discovering ways to deliver service in a centralised manner – online or through telephone. Thus curtailing the need to keep company personnel at different locations or at the facilities of major customers.
xi. The capital for funding potentially profitable E-Commerce businesses is readily available. In the Internet age, E-Commerce businesses have found it relatively easy to raise capital. Venture capitalists are quite willing to fund start-up enterprises provided they have a promising technology or idea, an attractive business model, and a well thought out strategic plan.
xii. The needed E-Commerce resource in short supply is human talent-in the form of both technological expertise and managerial know-how. While some E-Commerce companies have their competitive advantage lodged in patented technology or unique physical assets or brand-name awareness, many are pursuing competitive advantage based on the expertise and intellectual capital of their personnel and on their organizational competencies and capabilities.
E-Commerce – 6 Major Types
The objectives of E-Commerce are to make direct relations between the customers and the manufacturer/distributor, to reduce distribution costs, to expand the market and give the best services to the consumer. From the customer’s point of view the best products are available to him sitting at home.
The following can be included in E-Commerce:
Type # 1. Business to Business E-Commerce (B2B):
This is that type of E- Commerce in which a business organisation sells goods to another business organisation in either wholesale or retail. The foundation of this type of E-Commerce is the mutual consent and understanding between the organizations. This is also called, Internet Transaction. Many companies like Citi Bank, Bank of India, Tata, I.B.M., Axis Bank, A.B.C. India. TELCO, BHEL, ESSAR, Maruti Udyog, Bajaj Auto, Samsung Electronics, Intel, T.V.S.E, etc. have adopted this system. Many companies form direct contacts with their distributors and suppliers through B2B E-Commerce. Most processes in this system come under E.D.I.
Type # 2. Business to Consumer (B2C) E-Commerce:
In this type of E-Commerce business organisations sell their products or services directly to the consumer/users. This is called on-line shopping. Many organisations have entered in this field and are selling products like books, audio cassettes, computers, mobiles, clothes, medicines, hotel booking, and railway reservation etc., through popular Indian web sites like alibaba(dot)com, bazaar(dot)com. According to Kotler and Armstrong sale by the business organizations to consumers or end users by using on line system is called E-Commerce.
Type # 3. Consumer to Consumer (C2C) E-Commerce:
This type of E-Commerce includes business transactions between consumers. Auction sites are prime example of this type of E-Commerce. For example, when a person wants to sell some things then he provides the information about the things on web-sites. The person interested in buying the same can access the web site on internet, e-bay(dot)com is one such popular web site which provides the information regarding the products since 1995.
There are many sites where individuals can buy and sell, thanks to online payment systems like Pay Pal where people can send and receive money online with ease. Instead of purchasing items directly from an unknown seller, the buyer can instead send money to Pay Pal. From there, Pay Pal notifies the seller that they will hold the money for them until the goods have been shipped and accepted by the buyer.
Type # 4. Consumer to Business (C2B) E-Commerce:
Under this model, a consumer posts his project with a set budget online and within hours companies review the consumer’s requirements and bid on the project. The consumer reviews the bids and selects the company that will complete the project. The C2B model is also called ‘reverse auction’. Examples of this model are Reverse Auction(dot)com, Priceline(dot)com. E-lance(dot)com. They empower consumers around the world by providing the meeting ground and platform for such transactions.
Above described four types are the major categories of E-commerce.
Type # 5. Project to Project (P2P) E-Commerce:
This includes the services provided by business or professional organisations in conducting or helping in projects anywhere in the world. The advantage of this e-commerce is that service providing organisations do not have to send their employees outside the premises.
Type # 6. E-Governance:
In this type of E-Commerce the governments use the E-commerce system to make themselves more effective, efficient, and public friendly and transparent. Business to Government and Government to Consumer exchanges are included in this. Filing income tax returns, renewing trade licences, giving information about sales, getting driving licences, paying bills etc. are included in this type of E-Commerce. It is becoming more popular in India.
Major types of E-Governance are:
G2G (Government to Government), G2E (Government to Employees), G2B (Government to Business), B2G (Business to Government), G2C (Government to Citizen) and C2G (Citizen to Government).
E-Commerce – 6 Important Steps
The steps involved in e-commerce are as follows:
(i) Search for Relevant Website – An online buyer takes the following steps to find the appropriate seller-
(a) He logs on to the internet and selects a menu item that appears on the screen of his computer,
(b) He makes use of a search engine to find an appropriate seller’s websites,
(c) He may approach the desired sellers’ website from another website which is advertising it,
(d) He may select the desired seller from advertisements or on a friend’s recommendation.
Selecting an appropriate seller’s website can be as easy or difficult as finding an appropriate shop in a conventional market.
(ii) Search for the Desired Product or Service on the Website – The buyer can identify the desired product/service on the website from its picture or description. Unlike a conventional shop, there is no salesman on the website to assist the buyer.
(iii) Negotiating with the Seller – In case the website does not specify the prices and terms of sale, the buyer will contact the seller on telephone. He will negotiate and place order with the seller.
(iv) Making Payment – In an online purchase, payment may be made through credit card or cheque.
(v) Delivery – In e-commerce, goods which cannot be delivered on line, post or courier service are used to deliver goods to buyer. Electronic products such as software, music and information can be delivered online by way of downloading. Air ticket or insurance policy bought and paid for online may be confirmed online itself and there is no need for delivery. In some cases the buyer may be asked to collect the goods from the seller’s local distribution centre.
(vi) After Sale Service – Some suppliers provide online support and after sale services to their customers.
E-Commerce – Applications of E-Commerce
E-commerce has been put to good use in various sectors in recent times.
Some of these could be listed thus:
i. E-tailing, where online retailers sell their products and services through the internet.
ii. E-banking, where banks are able to carry out fund transfers, bill payments, credit card services and insurance related services through their websites connected to customers’ account.
iii. Online gaming, where people can participate in contests and games with other contestants from all over the globe.
iv. Travel services, where customers of airlines, railways, buses can buy tickets online.
v. Supply chain management, where retailers like Wal-Mart can create alert mechanisms which would send signals to suppliers to send fresh supplies when stocks of a particular item are low (say alerting P&G when the stock of Tide is low at a particular store).
vi. Job search, where recruiters and job seekers can log in and look at the requirements and fill vacancies quickly.
vii. Matrimonial service providers.
viii. Online auctions, where items can be kept for a price to be decided by buyers and sellers through the bidding process.
ix. Online publishing services.
E-Commerce – Security and Safety of E-Commerce
In e-commerce, security problems arise in terms of the internet and the danger that hackers will intercept messages, misuse the information or change the content of the message.
In order to ensure security and safety of e-commerce, the following points need to be strengthened:
(1) Authentication ‘Cookies’:
In order to confirm that the customer has correctly entered his details in the registration form, the online vendor may verify the same from the ‘cookies’. Cookies are very similar to the caller ID in telephones that provide tele-marketers with relevant information about the customer such as his name, address, previous purchase payment record, etc. The sender of a document must be identified precisely and without any possibility of fraud.
(2) Anti-virus Programs:
Anti-virus programs (e.g., Norton, AVG, etc.,) should be installed. All files and discs should be scanned fully using such programs to protect data files, folders and systems from virus attacks.
(3) Encryption:
Encryption is the conversion of data into a code so that it may not be read by unauthorised users. The data is converted into the code by the sender and then decoded by the receiver. Hopefully only the sender and the receiver know the rules for encoding and decoding and thus nobody else can read the message.
(4) Digital Signatures:
A digital signature is used to authenticate the sender of the message and to check the integrity of the message, i.e., it has not been altered in transit.
The authentication element requires a digital ID, also known as digital certificate that is issued by a third party certification authority. The digital ID is sent with the message and is designed to verify the identity of the sender. Digital signatures plainly need to be encrypted when they are delivered from the certification authority and when they are used in the message.
(5) Cyber Crime Cell:
In many countries, the governments have set up Cyber Crime Cells to inquire into the cases of hacking and other crimes and book the criminals and take necessary action against them.
E-Commerce – Security Problems Related to E-Commerce
E-Commerce has been facing certain problems which endanger security and safety of business transactions.
The important problems are discussed below:
(1) Transactional Risks:
The common transactional risks of online dealings are:
(i) Default on order – A seller may deny that the customer ever placed the order.
(ii) Default on delivery – Sometimes, goods may be delivered at wrong address or goods other than ordered may be delivered to the buyer.
(iii) Default on payment – Sometimes, the seller does not get the payment for the goods supplied whereas the customer claims that the payment has been made.
To overcome these problems, the seller must confirm that customer has entered the correct information from the cookies. Cookies are just like caller ID in telephone which provide information like customer’s name, address, previous purchase record, etc. Customers can also protect themselves by shopping from well-established websites only.
(2) Risk of Impersonation:
There is a possibility of use of stolen credit cards for purchasing goods by thieves who may present themselves as real card holders.
(3) Fraudulent Practice:
A businessman may operate a fake website to defraud the people. He may receive advance payments from the customers against their orders and not supply the goods or services. He may even misuse confidential information about customers.
(4) Brand-Hijacking:
Internet allows creation of powerful brands in a very short period of time. But brand identity created through radio, T.V. and press is very costly and time consuming. The internet brand may overshadow the existing brands causing huge loss to their owners. For instance, Amazon became the leading bookseller brand within a period of about two years and it offered tough challenge to the established names such as Barnes and Noble. As a safeguard, each company should establish its brands in cyberspace without further delay.
(5) Data Storage and Transmission Risks:
Vital information stored in the system can be stolen or changed to pursue some selfish motive.
The risk involved in data storage are:
(i) Virus (Vital Information under Seize) – Some of the computer viruses are deadly. They can clean up all the information stored in the computer memory. The viruses can enter the computer through e-mail, disc or pen drive. Viruses bring the things to a standstill, causing huge loss of time and revenue for the organisation.
(ii) Hacking – Hacking refers to unauthorised entry into a website. Hackers often destroy the data and information which causes huge loss to the owner of the website because of interruption.
This problem can be solved by:
(a) Setting up a special crime cell – The government has set up a special crime cell to look into the crimes committed by the hackers and take necessary action against them.
(b) Encryption – It refers to converting the message into a code so that unauthorized person may not understand it.
(c) Digital signature – Under this method, a coded digital certificate is issued by the certification authority. This helps in checking the identity of the sender.
(6) Risk of Threat to Intellectual Property and Privacy:
(i) The information available over the internet (in the course of online transactions) may be copied by other online vendors, who may start sending promotional messages into the e-mail box of the customer.
(ii) The online vendor himself may not protect confidential information about the customers.
(iii) Hackers may pretend to be customers themselves. They may make use of stolen credit cards for real customers.
(iv) A fraudulent business enterprise may operate a fake website and take away advance money from customers and not supply any product.
E-Commerce – Principal Advantages
The principal advantages of e-commerce may be listed as follows:
Advantage # 1. Lower Cost:
Doing e-business is cost effective. It reduces logistical problems and puts a small business on a par with giants such as – eBay, Amazon (dot) com or General Motors. E-commerce can help reduce advertising costs, display and distribution expenses to a considerable extent. Whatever the customer is looking for, the firm can put the same on display over the website at very little cost. In a commercial bank, for example, if most customers would conduct business through e-banking initiatives, transaction costs would come down drastically.
Advantage # 2. Economy:
Unlike the brick-and-mortar environment, in e-commerce there is no physical store space, insurance or infrastructure investment. All you need is an idea, a unique product, and a well-designed web storefront to reach your customers, plus a partner to do fulfilment. This makes e-commerce a lot more economical. E-commerce offers cost effective solutions can excite customers and entice them to be website repeatedly.
Advantage # 3. Higher Margins:
E-commerce means higher margins. For example, airlines can save nearly 80 per cent of the processing expenses by issuing electronic tickets in place of printed tickets. All these savings can be passed on to customers in one form or the other. This means higher margins and profits for the firm that runs the show through the Internet.
Advantage # 4. Better Customer Service:
E-commerce means better and quicker customer service. Online customer service makes the customers happier. Instead of calling your company on the phone, the web merchant gives customers direct to their personal account online. This saves time and money. For companies that do business with other companies, adding customer service online is a competitive advantage. The overnight package delivery service, where tracking numbers allow customers to check the whereabouts of a package online, is one good example.
Amazon(dot)com (or eBay), for example, offers books, music, consumer electronics, cameras, cell phones, furniture, food, beauty products, software, movies music, and many more. The moment a customer places an order, the goods are ready to be packed off on the same day. In addition to steep discounts, there is comfort and convenience that comes as a bonus to customers.
Advantage # 5. Quick Comparison Shopping:
E-commerce helps consumers to comparison shop. Automated online shopping assistants called hopbots scour online stores and find deals on everything from apples to printer ribbons. Automobile websites offer services such as – new car research, on-road prices of new cars from almost all the manufacturers, a prioritized ranking as per the criteria set by the prospective customer and additional services such as tie ups with manufacturer’s dealers, financiers, insurance firms, etc. A customer can never get such a quick comparison shopping if he or she wants to find out the availability of a car with specifications matching requirement at a rewarding price—if a physical search is carried out on a shop to shop basis.
Advantage # 6. Productivity Gains:
Weaving the web throughout an organization means improved productivity. For example, IBM incorporated the web into every corner of the firm—products, marketing, and practices. The company figured it would save $750 million by letting the customers find answers to technical questions via-its website. The total cost savings in 1999 alone was close to $1 billion.
Advantage # 7. Teamwork:
E-mail is a shining example of the ways in which people collaborate to exchange information and work on solutions. It has transformed the way organizations interact with suppliers, vendors, business partners, and customers. More interactions mean better results.
Advantage # 8. Knowledge Markets:
E-commerce helps create knowledge markets. Small groups inside big firms can be funded with seed money to develop new ideas. For example, Daimler Chrysler (the German car manufacturing corporation) has created small teams to look for new trends and products. A Silicon Valley team is doing consumer research on electric cars and advising car designers.
Advantage # 9. Information Sharing, Convenience, and Control:
Electronic marketplaces improve information sharing between merchants and customers and promote quick, just- in-time deliveries. Convenience for the consumer is a major driver for changes in various industries. Customers and merchants save money; they are online 24 hours a day, 7 days a week; there is no hassle of traffic jams, no crowds, and customers do not have to carry heavy shopping bags.
E-Commerce – 9 Major Drawbacks
E-commerce suffers from the following drawbacks:
1. Security:
Security continues to be a problem for online businesses. Customers need to feel confident about the integrity of the payment process before they commit to the purchase. Banks such as – ICICI Bank, HDFC Bank, State Bank of India, etc., have added secure payment gateways to process online banking transactions quickly and safely.
2. System and Data Integrity:
Data protection and the integrity of the system that handles the data are serious concerns. Computer viruses are rampant, with new viruses discovered every day. Viruses cause unnecessary delays, file backups, storage problems, and other similar difficulties. The danger of hackers accessing files and corrupting the accounts adds more stress to an already complex operation.
3. System Scalability:
A business develops an interactive interface with customers via a website. After a while, statistical analysis determines whether visitors to the site are one-time visitors or recurring customers. If the company expects 2 million customers and 6 million show up, website performance is bound to experience degradation, slowdown, and, eventually, loss of customers. To stop this problem from happening, a website must be scalable, or upgradable on a regular basis.
4. E-Commerce is not Free:
So far, success stories in e-commerce have forced large business with deep pockets and good funding to invest in creating online websites. According to a report, small retailers that go head-to-head with e-commerce giants are fighting a losing battle. As in the brick and mortar environment, they simply cannot compete either on price or product offering.
Brand loyalty is related to this issue, which is supposed to be less important for online firms. Brands are expected to lower search costs, build trust, and communicate quality. A search engine can come up with the best music deals, for example, yet consumers continue to flock to trusted entities such as HMV.
5. Consumer Search is not Efficient or Cost-Effective:
On the surface, the electronic marketplace seems to be a perfect market, where worldwide sellers and buyers share and trade without intermediaries. However, a closer look indicates that new types of intermediaries are essential to e-commerce. They include electronic malls that guarantee legitimacy of transactions. All these intermediaries add to transaction costs.
6. Customer Relations Problems:
Not many businesses realize that even e-business cannot survive over the long term without loyal customers. Building customer loyalty to a specific site is not an easy task. Customers are notoriously fickle minded, and do not mind visiting a competing website just to avail even onetime benefits or discounts.
7. Products that People won’t Buy Online:
Imagine a website called furniture (dot) com or living (dot) com, where venture capitalists are investing millions in selling home furnishings online. In the case of a sofa, you would want to sit on it, feel the texture of the fabric, etc. Beside the sofa test, online furniture stores face costly returns which make the products harder to sell online.
8. Corporate Vulnerability:
The availability of product details, catalogue, and other information about a business through its website makes it vulnerable to access by the competition. And such threats are increasing day by day in this digital, networked world.
9. High Risk of Internet Start-Up:
Many stories unfolded in 1999 about successful executives in established firms leaving for Internet start-ups, only to find out that their get-rich dream with a dot (dot) com was just that—a dream.
E-Commerce – Limitations to Organizations, Consumers and Society
Various limitations of E-Commerce are:
1. Ecommerce Lacks that Personal Touch:
Not that all physical retailers have a personal approach, but we do know of several retailers who value human relationship. As a result, shopping at those retail outlets is reassuring and refreshing. Clicking on “Buy Now,” and piling up products in virtual shopping carts.
Unless we are using a website to merely order a pizza online, ecommerce websites deliver take a lot longer to get the goods into your hands. Even with express shipping, the earliest you get goods is “tomorrow.”
But if we want to buy a pen because we need to write something right now, we cannot buy it off an ecommerce website. An exception to this rule is in the case of digital goods, an e-book, or a music file. In this case, ecommerce might actually be faster than purchasing goods from a physical store.
3. Many Goods cannot be Purchased Online:
Despite its many conveniences, there are goods that you cannot buy online. Most of these would be in the categories of “perishable” or “odd-sized.” Think about it, you cannot order a Popsicle also referred to as an ice pop or a dining table set.
Well, we could order both of them online, but consider the inconvenience. The Popsicle would have to be transported in refrigerated trucks. Unless the seller was willing to make a huge loss, the cost of shipping that Popsicle would far exceed the cost of the Popsicle.
Likewise, a dining table set can certainly be purchased online. In some cases, the cost of logistics is bearable. But if we have to return the furniture, we will get well-acquainted with the inconvenience of ecommerce.
4. E-commerce does not Allow you to Experience the Product before Purchase:
We cannot touch the fabric of the garment we want to buy. We cannot check how the shoe feels on our feet. We cannot “test” the perfume that we want to buy. We get the idea. In many cases, customers want to experience the product before purchase.
Ecommerce does not allow that. If we buy a music system, we cannot play it online to check if it sounds right? If we are purchasing a home-theatre system, we would much rather sit in the “experience center” that several retail stores set up.
5. Anyone can Set Up an Ecommerce Website:
We live in an era where online storefront providers bring us the ability to set up an ecommerce store within minutes. I have tried it, and it is possible to set up a basic store in under 10 minutes.
But if anybody can set up a store, how do we know that the store we are purchasing from is genuine? The lowered barriers to entry might be a great attraction to the aspiring ecommerce entrepreneur. But for the buyer, reliability can be an issue. This could lead customers to restrict their online purchases to famous ecommerce websites.
When making an online purchase, we have to provide at least your credit card information and mailing address. In many cases, ecommerce websites are able to harvest other information about our online behaviour and preferences. This could lead to credit card fraud or worse, identity theft.
There was much hype surrounding the Internet and e-commerce over the last few years of the twentieth century. Much of it promoted the Internet and e-commerce as the panacea for all ills, which raises the question, are there any limitations of e-commerce and the Internet?
Limitations of E-Commerce to Organizations:
1. Lack of Sufficient System Security, Reliability, Standards and Communication Protocols:
There are numerous reports of websites and databases being hacked into, and security holes in software.
For Example – Microsoft has over the years issued many security notices and ‘patches’ for their software. Several banking and other business websites, including Barclays Bank, Powered and even the Consumers’ Association in the UK, have experienced breaches in security where ‘a technical oversight’ or ‘a fault in its systems’ led to confidential client information becoming available to all.
2. Rapidly Evolving and Changing Technology:
There is always a feeling of trying to ‘catch up’ and not be left behind.
3. Under Pressure to Innovate:
The business models to exploit the new opportunities which sometimes lead to strategies detrimental to the organization. The ease with which business models can be copied and emulated over the Internet increases that pressure and curtails longer-term competitive advantage.
4. Facing Increased Competition:
From both national and international competitors often leads to price wars and subsequent unsustainable losses for the organization.
5. Problems with Compatibility of Older and ‘Newer’ Technology:
There are problems where older business systems cannot communicate with web based and Internet infrastructures, leading to some organizations running almost two independent systems where data cannot be shared.
This often leads to having to invest in new systems or an infrastructure, which bridges the different systems. In both cases this is both financially costly as well as disruptive to the efficient running of organizations.
Limitations of E-Commerce to Consumers:
1. Computing equipment is needed for individuals to participate in the new ‘digital’ economy, which means an initial capital cost to customers.
2. A basic technical knowledge is required of both computing equipment and navigation of the Internet and the World Wide Web.
3. Cost of access to the Internet, whether dial-up or broadband tariffs.
4. Cost of computing equipment- Not just the initial cost of buying equipment but making sure that the technology is updated regularly to be compatible with the changing requirement of the Internet, websites and applications.
5. Lack of security and privacy of personal data- There is no real control of data that is collected over the Web or Internet. Data protection laws are not universal and so websites hosted in different countries may or may not have laws which protect privacy of personal data.
6. Physical contact and relationships are replaced by electronic processes:- Customers are unable to touch and feel goods being sold on-line or gauge voices and reactions of human beings.
7. A lack of trust because they are interacting with faceless computers.
Limitations of E-Commerce to Society:
1. Breakdown in Human Interaction:
As people become more used to interacting electronically there could be an erosion of personal and social skills which Introduction to e-commerce might eventually be detrimental to the world we live in where people are more comfortable interacting with a screen than face to face.
2. Social Division:
There is a potential danger that there will be an increase in the social divide between technical haves and have not so people who do not have technical skills become unable to secure better-paid jobs and could form an underclass with potentially dangerous implications for social stability.
3. Reliance on telecommunications infrastructure, power and IT skills, which in developing countries nullifies the benefits when power, advanced telecommunications infrastructures and IT skills are unavailable or scarce or underdeveloped.
4. Wasted Resources:
As new technology dates quickly we can dispose of all the old computers, keyboards, monitors, speakers and other hardware or software?
5. Facilitates Just-in-Time Manufacturing:
This could potentially cripple an economy in times of crisis as stocks are kept to a minimum and delivery patterns are based on pre-set levels of stock which last for days rather than weeks.
6. Difficulty in Policing the Internet:
It means that numerous crimes can be perpetrated and often go undetected. There is also an unpleasant rise in the availability and access of obscene material and ease with which pedophiles and others can entrap children by masquerading in chat.
E-commerce – Problems and Negative Aspects
It is not that e-commerce has only positive aspects; it has certain negative aspects too.
These negative aspects create some major problems which are as follows:
1. Technological Problem:
E-commerce requires lot of enabling technologies to support different operations starting from order placing to payment. When we say that e-commerce creates wide market area, our assumption is that enabling technologies are available at all places. The reality is that even the prominent cities in industrially underdeveloped countries are not covered by electronic fund transfer, a pre-requisite of e-commerce.
Therefore, sellers can reach these places through Internet (it is easier to cover various cities and even smaller places through Internet) but they are unable to transact business because of lack of electronic fund transfer. To that extent, e-commerce may have relevance only to certain specific places.
2. Lack of Verification of Product Quality:
There are many products whose quality can be assessed by physical inspection and functional demonstration and not just through electronic display. For example, if a person who buys a television would like to see its performance before making choice of a particular TV set. Such facilities are not offered by e-commerce. Therefore, those products which require quality assessment by physical inspection may not have much scope of trading through e-commerce.
3. Legal Problem:
E-commerce does not have support of legal framework as yet. If there is a dispute between seller and customer, existing legal framework is not appropriate to handle such a dispute amicably. Lack of such a legal framework restricts the scope of e-commerce.
E-Commerce – Threats to E-Commerce
E-commerce has revolutionized the way business is done for all times. Retail has now come a long way from the days of physical transactions that were time consuming and prone to errors. However, e-commerce has unavoidably invited its share of trouble makers. As much as e-commerce simplifies transactions, it is occasionally plagued by serious concerns that jeopardize its security as a medium of exchanging money and information. There are major threats to present-day e-commerce.
1. Money Thefts:
E-commerce services are about transactions, and transactions are very largely driven by money. This attracts hackers, who have the knowledge of exploiting loopholes in a system. Once a chink in the armour is discovered, they feed the system (and users) with numerous bits of dubious information to extract confidential data (phishing).
This is particularly dangerous as the data extracted may be that of credit card numbers, security passwords, transaction details, etc. Also, payment gateways are vulnerable to interception by unethical users. Cleverly crafted strategies can sift a part or the entire amount being transferred from the user to the online vendor.
2. Identity Thefts:
Hackers often gain access to sensitive information like user accounts, user details, addresses, confidential personal information, etc. It is a significant threat in view of the privileges that one can avail with a false identity. For instance, one can effortlessly login to an online shopping mart under a stolen identity and make purchases worth thousands of dollars. He/she can then have the order delivered to an address other than the one listed on the records. One can easily see how those orders could be received by the impostor without arousing suspicion. While the fraudsters gain, the original account holder continues to pay the price until the offender is nabbed.
3. Threats to the System:
Viruses, worms, Trojans are very deceptive methods of stealing information. Unless a sound virus-protection strategy is used by the e-commerce Solutions firm, these malicious agents can compromise the credibility of all e-commerce web solution services. Often planted by individuals for reasons known best to them alone, viruses breed within the systems and multiply at astonishing speeds. Unchecked, they can potentially cripple the entire system.
E-Commerce – Solutions to E- Commerce
There is but one solution to all issues that at times dent the security of e-commerce services, and that is strict vigil on malicious intruders. Easier said than done? So is every preventive measure. However, with online transactions, progress in security has been overwhelming.
1. Authentication:
Most notable are the advances in identification and elimination of non-genuine users. E-commerce service designers now use multi-level identification protocols like security questions, encrypted passwords (encryption), biometrics and others to confirm the identity of their customers. These steps have found wide favour all around due to their effectiveness in weeding out unwelcome access.
2. Intrusion Check:
The issue of tackling viruses and their like has also seen rapid development with anti-virus vendors releasing strong anti-viruses. These are developed by expert programmers who are a notch above the hackers and crackers themselves. Firewalls are another common way of implementing security measures. These programs restrict access to and from the system to pre-checked users/access points.
3. Educating Users:
E-commerce is run primarily by users. Thus, e-commerce service providers have also turned to educating users about safe practices that make the entire operation trouble free. Recent issues like phishing have been tackled to a good extent by informing genuine users of the perils of publishing their confidential information to unauthorized information seekers.
E-Commerce – Key Drivers in Indian E-Commerce
The key drivers in Indian e-commerce are as follows:
1. Escalating broadband Internet subscribers, 3G penetration, and recent introduction of 4G in few cities, India has an Internet user base of about 243.2 million as of January 2014. It is growing at a much faster rate, adding around six million new entrants every month.
2. Explosive growth of smartphone users, soon to be world’s second largest smartphone user base.
3. Availability of much wider product range (including long tail and direct imports) compared to what is available at brick and mortar retailers. Competitive prices compared to brick and mortar retail, driven by disintermediation and reduced inventory and real estate costs.
4. Increased usage of online classified sites, with more consumer buying and selling second-hand goods
5. In India, cash on delivery is the most preferred payment method, accumulating 75% of the e-retail activities, which needs to make a shift towards online payment mechanisms.
6. India has got its own version of Cyber Monday known as Great Online Shopping Festival (GOSF), which started in December 2012, when Google India partnered with e-commerce companies including Flipkart, HomeShop 18, Snapdeal, Indiatimes shopping, and Makemytrip. ‘Cyber Monday’ is a term coined in the USA tor the Monday coming after Black Friday.
In June 2013, Amazon(dot)com launched their Amazon India marketplace without any marketing campaigns and invested $2 billion in India to expand business, Amazon has also entered grocery segment with its ‘Kirana now’ in Bangalore and is also planning to enter various other cities such as Delhi, Mumbai, and Chennai.
After this, its largest Indian rival Flipkart has raised about US $2.3 billion till November 2014. Snapdeal raised US $50 million in April’13, and in Feb 2014, online fashion retailer Myntra raised US $50 million from a group of investors led by Premji Invest.
Traditional retailers such as Wal-Mart and Starbucks, hugely successful in their own right, have also set up online stores so as not to miss the revenue opportunities that the Internet offers.
E-Commerce – Future Scenario
E-commerce has unleashed yet another revolution, which is changing the way businesses buy and sell products and services. India is showing tremendous growth in the e-commerce sector. The low cost of the PC and the growing use of the Internet is one of reasons for that. There is a growing awareness among the business community in India about the opportunities offered by e-commerce. The future does look very bright for e-commerce in India with even the stock exchanges coming online providing an online stock portfolio and status with a 15-minute delay in prices.
Internet usage will increase at a phenomenal rate in the years ahead and this should help boost volumes in e-commerce. A McKinsey-Nasscom report predicts e-commerce volumes to be of the order of over $200 billion soon. There are, of course, enough reasons for e-commerce not picking up speed so far. Net banking is still at a nascent stage in India. Products do not get delivered in time, as promised by the vendors. The sites do not give an appropriate picture of the products on display. Vendors need to be wrestle with taxation related issues such as – octroi, entry tax, VAT and lots of state- specific forms, etc.
There are still lots of hurdles coming in the way of developing telecom infrastructure in a big way. The legal and regulatory mechanisms have been far from satisfactory. Buyers have to grapple with the problems of trust, dishonest, lack of security to business data and absence of secure payment gateways, etc. Both vendors and buyers have lived with these constraints so far. The entry of global players has changed the scenario dramatically during the past couple of years.
The focus is slowly but steadily shifting towards areas which have not been in focus so far—such as – travel, stock trading, movie tickets, real estate, mobile banking, (apart from traditional ones such as – books, audio and video cassettes, gift delivery services, etc.). Indian banks have also joined the main stream in offering value added services to customers in recent times—by adapting the EC and EDI technologies with real time account status, transfer of funds, stop payment facilities, etc.
The future does look very bright for e-commerce in India with even the stock exchanges coming online providing an online stock portfolio and status with a 15-minute delay in prices. The day cannot be far when with RBI regulations will able to see stock transfer and sale, transfer of funds, etc., over the Internet or even mobile with specialized services.