 The magazine of the Melbourne PC User Group Using the Internet for commerce Lisa Lim and Peter Stanski |
It is important to understand the definition of the "Internet". The Internet is also known as the Net. It is one of the oldest long-distance networks, which refers to a network of networks linking computer users all over the world. That is, a world wide network of interconnected computers, accessible from home through the use of a modem. It serves as a repository of information on a wide range of topics. And more importantly, it acts as an open resource available to customers for information, communication and commerce.
The term "Internet commerce" is used most commonly in referring to consumers purchasing transactions on the Internet. With online malls popping up on every corner, Internet commerce has become synonymous with processing credit cards on Web sites. However, this definition is too narrow, which leads us to two problems.
Potential targets
The first problem is that consumer purchasing represents only a fraction of commerce. Modern commerce includes interactions between manufacturers and distributors, distributors and retailers, as well as retailers and consumers and even the government. Market researchers estimate that by the year 2000, over $160 billion in goods and services will be bought and sold over the Internet. They project 75 per cent of that volume will come from business-to-business commerce. As a result, companies restricting their view of Internet commerce to consumer-oriented commerce are missing out entirely on three-quarters of the market. And so, companies have begun to realise that Internet commerce has much greater value when the term is defined in relation to both business-to-business and business-to-consumer commerce.
Electronic Data Interchange
The second problem is that purchasing transactions represent a small--but important--proportion of the inter-action between organisations. Internet commerce can be seen as a superset of electronic commerce. Electronic commerce typically refers to the exchange of Electronic Data Interchange (EDI) transactions between trading partners, and is normally limited to transactions related to procurement: quotes and bids, purchase orders, invoices. Internet commerce involves procurement processes and much more. Seeking out new customers, establishing suppliercustomer relationships, finding products, negotiating favourable terms, receiving support, managing operations. These are only a few of the processes that may involve multiple organisations that can derive real benefit from the Internet.
Electronic transactions
Internet commerce is more than just credit card processing and it is more than electronic commerce. Internet commerce is the business of electronic commerce. It includes both business to business and business to consumer commerce. It includes any number of business processes that involve more than one company. So when we use the term "Internet commerce", we are referring to the process of conducting business using the Internet.
As this means of communication and obtaining information is gaining popularity amongst all users, the young and old should understand some of the benefits associated with this technology. Some of the benefits of Internet commerce include:
- Reducing costs and streamlining operations
- Growing by extending existing products and service or by reaching new
markets
- Leap-frogging the competition to gain a competitive edge.
Reducing the cost of doing business is the most frequently cited benefit of Internet commerce. The reason being that electronic transactions are much less expensive than traditional paper transactions. Computer automation of other business processes and integration into electronic commerce can result in significant time and cost savings.
Using the Internet as a marketing channel can result in savings that may not be so obvious. First, a Web site can provide an extremely low-cost mechanism for distributing your marketing messages. As an information delivery platform, the Web allows you to provide significantly more detail about your products and services.
Reducing costs by performing transactions online can affect your existing sales, marketing, and distribution channels. But this is not a one sided arrangement. Both parties participating in electronic commerce benefit. If you are selling products or services over the Internet, you save by decreasing the cost of each transaction. Customers also save by reducing their purchasing costs such as travel and time. These lower costs will inevitably result in greater participation in electronic commerce. This in effect makes electronic commerce more attractive to customers.
New products, services, and markets
While cost savings are an important benefit, growth is a much more important reason to implement an Internet commerce program. Transforming existing physical products into digital form is one way of achieving growth through Internet commerce. Expanding into new online markets is another means of achieving growth through Internet commerce. A good example would be with the travel industry. Together, sites such as TravelWeb and Travelocity are booking millions of dollars in airline, hotel, and cruise reservations every day. Another successful Web-based company is Amazon.com, which sells millions of dollars worth of books via its Web site.
The competition
Many companies are realising that an Internet commerce program is an absolute requirement to keep up with their existing competitors and to meet newer, more agile competitors head-on.
Online markets have a very low cost of entry - little if any physical real estate, no warehouses, no inventory, and often no salespeople. Because the entry cost is so low, new technology startups pursue and succeed in these lucrative markets. Effectively, anyone with a marketable concept could be selling it via the Internet within a few days, for a modest startup fee.
However, there must be incentives to purchase goods over the Internet. This includes things such as better selections, improved service or reduced price. It must be convenient, simple to use and ubiquitous. Also, users must have confidence that their transactions are secure, their privacy is inviolate, and they will not be subject to liability. One form of a safe method of transaction is that of SET, which stands for Secure Electronic Transaction.
The SET protocol
Interest in Internet commerce has grown substantially over the last few years, with the fundamental question of how transaction security can be accomplished by businesses and consumers alike. In response, a new group of Internet payment products has emerged, using a variety of commerce mechanisms and unproven business models.
To begin reaching its potential, Internet commerce needed the backbone of a security standard that had the visible, expert support necessary to solidify trust in the marketplace. SET, the Secure Electronic Transaction protocol first announced by Visa and MasterCard in 1996, is providing this standard.
Based on encryption and digital certificates for transaction security and authentication, SET is now emerging as the definitive standard and secure online credit card transactions. With the support of Visa, MasterCard and the world's leading financial institutions along with technology providers, SET is expected to become the unifying solution that will drive the adoption of Internet commerce around the world. SET is essential to the growth of Internet commerce because it provides an open security standard, preventing the market from fragmenting into incompatible and proprietary solutions.
Risks and benefits
Internet commerce provides new benefits and poses new risks. With estimates ranging from $100 billion to $200 billion annually in the next few years exchanged in Internet commerce, the growth of Internet commerce will be explosive. As with any market, there will be losers and winners in the game. To implement an Internet commerce program, one must assess their current situation, the state of the market, and the capabilities of their competitors. Importantly, the price for implementing such programs varies.
You can stick with a simple marketing catalogue using low-end software, do it yourself, and have a complete (although limited) program for a start. Ongoing monthly fees for Web hosting and amounts for generated traffic quickly add to the varying monthly business costs. However, if you want to go beyond simple marketing brochure style catalogues and accept orders or generate quotes online, the implementation requirements are more significant. Analysts estimate that the average amount invested in a commerce-enabled Web site is in excess of $1.2 million. But these sites are built from scratch and hence the hefty price.
Conclusions
The Web is now ready for the next generation of companies. Secure electronic payment systems are the defining factors that will enable companies, large and small, to profit by selling online. The world is now using electronic commerce and many organisations such as Digital and IBM, along with hundreds of consulting firms, are providing turn-key solutions for the making of next generation of electronic shops and e-commerce centres. These are booming at a phenomenal rate as consumer commerce enters the fast lane on the information superhighway.
About the authors
Lisa Lim is a final year student at Monash University. She can be reached via e-mail at aclim1@student.monash.edu.au
Peter Stanski is a Ph.D. student at Monash University. He can be contacted via e-mail at peter.stanski@csse.monash.edu.au
Reprinted from the June 1998 issue of PC Update, the magazine of Melbourne PC User Group, Australia
