Are You Out of Your Depth with E-Commerce? Neville I Williams School of Informatics and Engineering Flinders University Adelaide, Australia Email:
[email protected]
Abstract Why is Electronic Commerce (E-Commerce) not the runaway success it was supposed to be? Instead of hearing or reading about wonderful achievements we appear to be finding an increasing number of stories ranging from disappointment to despair. In this paper it will be argued that the term e-commerce means too many things to too many different people, and it will be shown that a number of variants of e-commerce models can be defined to help clarify which style of e-commerce is being discussed. Restricting the discussion to the commonly discussed business to consumer (B2C) model, it will be shown that while the "classic" model of e-commerce is appropriate for many businesses, it is equally inappropriate or unaffordable for many more businesses, especially those in the small and medium end of the business sector. The paper introduces a new view of B2C ecommerce as an immersion model with a number of distinct layers of sophistication, based on matching business functionality with technological implementation. Keywords electronic commerce, e-commerce models, immersion model, business to consumer implementation
WHAT IS E-COMMERCE? In its most fundamental sense, e-commerce can be considered as the ability to undertake commercial transactions (ie commerce) electronically. Lawrence et al (1998) define electronic commerce as "… the buying and selling of information, products and services via computer networks today and in the future, using any one of the myriad of networks that make up the Internet", yet acknowledge that others consider that "… electronic commerce has many definitions depending on the perspective from which you view it". Another perspective is revealed by Schneider and Perry (2001), who choose to consider the term in a broad context, describing electronic commerce as "… business activities conducted using electronic data transmission via the Internet and the World Wide Web". There are 2 parts to this term, namely the commerce side, and the electronic side. Ignoring the electronic side in the first instance, the underlying question becomes "What is commerce?", and it is clear that there are many variations of approaches to commerce across every type of industry that one cares to consider. Commerce has existed for centuries in one form or another, and evolved into its contemporary forms which we now recognise as some variation of the term commerce. The general notion of commerce may be summarised as a series of steps which take place •
a party to a commercial transaction offers goods or services for sale at a price - the vendor.
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another party offers to buy those goods or serv ices at a (negotiated) price - the purchaser.
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the agreement on price and terms establishes a contract between the vendor and purchaser. The contract may be either a formal contract or an implied contract.
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an exchange occurs to complete the transaction - typically the vendor delivers the goods or provides the agreed services, and the purchaser pays the agreed sum.
It is not the intention of this paper to describe the range of variations that can be seen in the different forms of commerce, but rather to acknowledge that there is a very wide range of transactions that fall under the generic umbrella of a commercial transaction. Of particular interest is the recognition that the above four steps constitute what can be considered as essential elements of a commercial transaction. With this agreement, it is now possible to review how those elements can be combined in an electronic format to create one or more models or structures for "electronic commerce". Kate Maddox (1998) in her book on web based commerce recognised that "… there is no single model for Web commerce …" and identified a number of elements that need to be put together to build an appropriate e-commerce solution for a particular business enterprise. Sadly the popular opinion expressed by industry writers appears to overlook these elements and continues to reproduce the classic "business to consumer (B2C)" and CollECTeR 2001
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"business to business (B2B)" models as the only classifications of e-commerce, and by implication that there is typically only one strategy within each of those models. Increasingly, more and more authors are recognising that there is a variety of models which fall under the umbrella of e-commerce, and there is also a shift of emphasis to now describe the e-business community, as shown by Dietel et al (2001) when they suggest that "… an e-business is defined as a company that has an online presence" and continue " … e-businesses that have the ability to sell, trade, barter and transact over the Web can be considered e-commerce businesses". In this paper the focus will shift away from the "classic" B2C model and identify several technological tools that are used in web-based applications as businesses take their first steps along the path to e-commerce activities. By considering business needs as a priority over technological needs, it will be shown that rather than simply "jumping in at the deep end" a far more practicable approach is with an immersion model where businesses can become progressively more involved with e-commerce technology as their business needs dictate. The Classic Model The integrative model approach (Clarke, 1993) appears to have influenced several writers, as the high-end full integration example appears to be widely reported in the journalistic press. Examples such as Bennett (1999), Bushell (1999, 2000) concentrate on high-end integration case studies implying them to be typical e-commerce models. This commonly discussed approach of full automation at all levels of the commercial transaction promotes the idea that it is the only model for e-commerce, suggesting that it could be described as the "classic" model for e-commerce. While there is no question that it is possible to automate the transaction at all levels, it does not answer the associated question about whether this is a good or cost-effective thing to do. While technologically this is perhaps the best technical solution, it is not necessarily the most practicable for all businesses. Other Models Rather than allowing e-commerce to become a holy grail, and every business blindly pursuing this singular vision of what e-commerce looks like, it is far more helpful to think about the business transactions taking place, and to see how they can be assisted electronically. With such an approach, every business can be accommodated in the manner which best suits their needs, rather than forcing businesses to modify their practices just because a particular approach may be fashionable. For example, a producer of cut-flowers to supply florist shops would typically deal only with a limited number of shops in a relatively small geographical area. The main requirements for such a business would be to advertise the availability of product and manage the order processing efficiently from a set of known customers. Manual methods such as repeatedly answering the same question of what is currently available and receiving telephone orders could be improved by publishing a regular newsletter outlining the types of product to be available in the next period which would be likely to be just a few weeks at most in conjunction with taking fax orders, thus removing the necessity to be on-hand for answering telephone calls. This same business with a web-based approach could make use of the advertising features of a web site, and take orders electronically either as on-line order form completion, shopping cart selection, or as simple e-mail. Existing payment systems, such as cash on delivery, or periodic accounts could continue as the owner wished without incurring the high costs associated with the online payment processing typically described as part of the "classic" e-commerce model. In the same way, a small business owner who provides services rather than goods, could make use of web services to advertise the availability of those services, capture booking type information, yet not require payment until the services have been provided. Equally, the customer would generally not wish to pay for such services until they had been received. One such example would be the case of a motor mechanic workshop, where advertising over the web would allow customers to seek and find the business, and potentially book in their vehicle for a service. An online payment system is unwarranted for this type of business. Naturally, there would be cases where service delivery is dependent upon first obtaining payment, and in those cases an online payment system as the "classic" e-commerce model describes is entirely appropriate. A common example would be the request for investment information by way of an on-line report. Unless there was an inbuilt method for securing payment before the downloading of the report occurred, it would be a huge burden for the information provider to recover the report fee. Consequently either a subscription style service where the fee was charged against an existing account balance (either actual or virtual) or an online payment system would be necessary for this type of business. The purpose of these three distinct examples is to show that each stage of a commercial transaction needs to be evaluated in the context of the nature of the business. Perhaps the only point of commonality is that they each share the need to advertise and publicise their goods and services. A web site will meet this requirement admirably. This also correlates to the first element of the commercial transaction - the vendor offering goods and/or services for sale at a stated price. In the electronic medium of the web site, the pricing is more fixed than in the face-to-face environment, with the corollary that the vendors terms and conditions are able to be specified CollECTeR 2001
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initially, which tends to remove most of the negotiation stage where vendor and purchaser may barter before arriving at an agreed set of terms and price. Beyond Basic Advertising The next stage of engaging the potential customer to the point of the customer wanting to place an order or purchase the goods/services will depend largely on the skill of the web designer in creating and maintaining the interest level of the customer, the type of outcome the business owner requires, and finally the format in which the customer side agreement is to be delivered. With a very small set of goods or services being promoted, individual orders are most likely to be effective - as in the case of the motor mechanic whose only wish is for customers to be able to book their vehicles in for a service or repair. The implementation method for this outcome is likely to be an on-line form to be filled in by the customer, followed by an email delivery of the form details. When the number of possible products (whether they be goods or services) gets to the point of requiring the customer to remember from a list of choices, or may involve quantities of various products, the usual implementation method becomes a shopping-cart approach, where the software captures the selections and quantities for the customer and fills a virtual shopping trolley progressively. In small scale applications the product range information may be obtained from static data files, but larger applications will typically extract the data from an associated database. In the high-end applications this database information will be directly linked to or extracted from corporate databases, but smaller organisations may need to keep their internal database separate from the web database, thereby necessarily having an additional overhead of maintaining the integrity between the two. Agreeing to Buy This negotiation phase is quite one-sided, with the customer having the ability to switch out of the site or cancel the transaction at any point before committing and thereby implicitly agreeing to the stated terms, conditions, and prices. In the face-to-face environment, the vendor may detect signals from the purchaser that can suggest how the possible sale process is progressing, and take appropriate actions to close the sale, but the online customer can switch to a competitor product with just a mouse-click for whatever reason. It is pure speculation and conjecture at this point that "closing the sale" is an aspect of internet commerce that may have been totally underestimated. Certainly there is substantial evidence in the traditional commerce arena that the value of high calibre sales staff is significant to the performance of the company. The third element of the commercial transaction, namely the customer agreeing to the price and terms of the goods and services offered for sale is often only implied by the action of the customer clicking on a 'submit' button. For both legal and ethical reasons, it is usual to implement a confirmation screen, summarising the progress of the transaction so far, and then requiring the customer to confirm the details (or cancel) before proceeding further. For order placement systems, this will normally terminate the transaction and internal processes for goods delivery and debtor processing will complete the transaction cycle. With fully automated systems, as per the "classic" e-commerce model, this signals the commencement of the fourth element, namely the payment-delivery phase. Completing the Sale Once customer agreement has been secured, the remainder of the transaction is purely functional - money (or the promise of money) is exchanged for goods or services, or the promise of the goods or services to be delivered at a later time. Perhaps because it is so routine we find that many e-commerce suppliers promote this phase of the system as being the penultimate way of defining an e-commerce transaction. However, in reality, there are very few merchants who really need the instantaneous confirmation of payment. A distinction is often made between the goods and services which can be delivered electronically and those which require physical delivery. No doubt, the larger organisations who sustain high volumes of transactions can only do so through using automated payment processing systems. For this environment, such payment processing systems are essential. However, small and medium enterprises (SMEs) are unlikely to need to service such high volume levels, and the associated infrastructure costs are quite likely to be prohibitively expensive. Instead, they require a means of confirming payment prior to shipment of goods, or confidence that payment will be made on delivery of those goods or services. Amor (2000) agrees, with his statements that "…. if your comp any offers only very few products and has very low order volumes, there is no need for a complex shopping system". To achieve a workable payment system, SMEs will need to have suitable merchant facilities arranged. In Australia, the banks distinguish between card-presented merchant facilities and non-card-presented facilities such as for mail-order or telephone-order approvals. The term used is "MOTO" for Mail-Order-Telephone-Order transactions, and is discussed in reasonable detail by Winn (2001) when describing the issue of consumer protection with credit card transactions and Regulation Z which limits the cardholder liability for unauthorised CollECTeR 2001
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transactions. Although directed to U.S. environments, the discussion is equally relevant to the Australian environment. Clearly internet commerce will generate credit card details, but no physical card for the merchant to see; hence telephone-mail-order authorisation/approval by the merchant's bank is required before the business operator can undertake such transactions. Whether the merchant then chooses to use manual payment processing by completing credit card transaction sheets and submitting these as deposits to their bank account, or semiautomated processing by keying the transaction details through their EFTPOS terminals, or a purely manual process in completing a mail order transaction form becomes a decision by the e-commerce merchant as to which is their preferred mode of processing. In such matters, the merchant will also need to comply with any financial institution imposed constraints such as "floor limits" where the merchant will need to obtain a credit card authorisation for each transaction that exceeds the merchant's floor limit. Once the merchant is satisfied that the payment has been effected, they can then proceed with dispatching goods or scheduling services to be performed according to their current business practices. The minimal requirement for merchants to implement such offline processing would be SSL (Secure Sockets Layer) enabled pages for the receipt of credit card details. Other alternatives include the merchant joining a shopping mall, where cooperative use of payment systems with other merchants allow a more cost effective use of automation of payments. A growing number of third-party suppliers who offer an equivalent service to a mall allows SMEs to tap into online authorisations at a potentially affordable rate. Whichever mode is employed still comes down to a basic business decision about which method offers the best combination of features and benefits for the funds employed. New Problems for Merchants This last phase may present unforeseen challenges to business operators, particularly where they do not have established systems for managing mail/telephone ordering and effective delivery and dispatch systems. With the potential scope of the market place being world-wide rather than just a localised geographic area, a whole new dimension to the delivery process may need to be considered. The logistics involved may also mean that it may not be cost effective for a business operator to consider venturing beyond defined geographical boundaries especially when a number of hidden costs start creeping in. Hidden costs may include higher freight charges, varying government charges incurred when crossing state or national boundaries, increased insurance costs, adjustments to returns policies, higher costs in validating non-delivery claims, and other similar difficulties. Invariably, as the distance between the merchant and customer grows, it becomes necessary to utilise third-party carriers, and this imposes a higher level of risk associated with the lower control that the merchant has over the transit stage. Contemporary practice appears to be that most merchants choose to dissociate themselves from the bulk of these hidden costs and pass all responsibility for such matters to the consumer. There are many recorded instances of Australian customers purchasing goods overseas and then finding that before they can take delivery of their goods (for which they have already paid, along with freight costs) they must pay additional government duty on the imported items. While this is no fault of the merchant, the customers will often feel disgruntled because they may have not realised that such duty was payable, or that the merchant should have displayed more prominently that the goods would be likely to attract duty in overseas destinations. Even basic SSL processing on merchant web sites poses a potential problem. Not from the SSL processing itself, for that is quite straightforward, but the question of "What happens once the order and credit card details are taken?" becomes an issue. Should the details be forwarded to the merchant by (unsecured) email? If the details are to be emailed, should they be encrypted for security of customer credit card details? Should the details be stored in a protected directory area or customer database on the web site? Then how is the merchant to retrieve these details securely? While the answers to these and other questions concerning privacy and security are beyond the scope of this paper, they are important questions that do need to be raised, and considered in the context of the business user environment.
A REVISED MODEL Based on the ideas described above, it is possible to arrive at a different view of electronic commerce, which considers both the process, and some possible implementation characteristics, along with a range of entry/exit points that allow a variety of model structures depending on the organisation under consideration. Table 1 Commerce Process Variants highlights these technical considerations relative to the commerce process concerned.
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Commerce Process
E-Commerce Variants
vendor offers goods or services for sale at a price
merchant web site displays goods and services available
eg - store based advertising, media advertising (print, radio, television), direct marketing
customers may have access to merchant (printed) catalogue or price list customers may be provided email updates of price information on a regular basis
purchaser selects items of goods/services and offers to buy those goods or services at listed price
selection method varies with implementation method, but includes as options: • order form • shopping basket • database search
purchaser agreement to price and terms establishes a contract between the vendor and purchaser
purchaser elects to "Place Order" or "Buy Now"
an exchange occurs to complete the transaction typically the vendor delivers the goods or provides the agreed services, and the purchaser pays the agreed sum including extras
Settlement process precedes delivery process. Settlement may be through: • charging to customer account • waiting for receipt of cheque or equivalent • charging against customer credit card • immediate payment required - real-time authorisation/funds transfer • deferred payment - using existing payment authorisation methods Delivery process may be via: • electronic delivery for goods • physical delivery of goods/services
Table 1: Commerce Process Variants The implementation of an e-commerce model for a specific business will of course depend on many factors that are closely related to how the individual business undertakes its present business and what new initiatives it hopes to explore in the internet e-commerce arena. The revised model discussed above can perhaps be better viewed as an "immersion model" where there are a number of distinct levels of involvement that a business enterprise will need to experience as it moves towards a more sophisticated e-commerce system.
THE IMMERSION MODEL The rationale behind the immersion model is based on the analogy of a person wading into the sea, where on the beach, there is no involvement with the water at all. As the person enters the sea, initially they can paddle in the shallows with little inconvenience or danger. As they enter deeper water, they can wade at knee to waist level depth, with slightly increased levels of preparedness - such as appropriate swimming attire - and a slightly increased level of risk. At shoulder depth, they will need the confidence to be in the water at that level, and should know how to swim, and be aware of the increased danger level. Once proceeding beyond this point, they will definitely need to know how to swim, and if proposing to venture further, will probably need additional assistance. Level 1: Advertising (Paddling in the shallows) Initial exposure to e-commerce activities would be for businesses to advertise their goods and services on a web site. Consistent with paddling, there is little inconvenience to business activities as everything is still conducted with existing normal processes. The dangers are limited - with the worst thing being the web site being 'down' for a period of time, or the advertising material on the web site is not kept up to date with the physical business activities. Level 2: Marketing (Wading at knee depth) Venturing beyond simple brochureware sites leads a business into a marketing style of web site where customer feedback mechanisms are in place. The web site becomes a two-way communication tool where customers can CollECTeR 2001
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receive the business information and respond through questions such as more extensive product details, supply options, and alternative choices. Whether businesses have set up a simple email response or a form-based inquiry response is still quite trivial, poses no real change to business processes, and is low risk. A small enhancement to this marketing approach is to allow customers to place orders based on what they have seen in the advertised material. This could be implemented either as simple email or as form-based ordering. Level 3: Simple Shopping (Waist level) When a significant number of orders are filtering through it is not unusual for businesses to want to make it easier for their customers to be able to select goods and place orders. Typically an implementation mode is through storing product details in a file or database system and use a shopping basket approach to allow customers to fill their virtual shopping trolley as they work their way through the product range. In the simplistic and small-volume environments, the shopping completion would result in an order being stored or sent to the business for subsequent manual processing. In some instances, the business operator may restrict processing to those customers with existing accounts. In others, payment details would be required before delivery could proceed further. Several implementation alternatives exist at this point. 1) Customers could print their order locally, attach a cheque for payment, and then send the order to the business. 2) Customers could print the order locally, insert credit card details on the order form and post or fax the completed order to the business. 3) Customers could insert their credit card details on an order page and submit the order to the web server. In this mode there is no indication of whether the page is secured or not, so one would normally assume an unsecured transaction is taking place. In the SME arena, most web sites are hosted externally, so there remains the problem of transferring the order and credit card data to the business. A common method is unsecured email transmission. Shopping basket software is relatively easy to implement, and poses only a slightly higher level of technical awareness and business difficulty. Where the data is not integrated with the business environment there is increased overhead in maintaining the consistency between web site data and current business systems data. There is also increased business risk for both consumer and the business where unsecured transactions are taking place. Level 4: Secure Shopping (Shoulder deep) A natural extension from the previous level is to provide increased levels of security over the transaction by conducting SSL transactions from the point of requesting credit card details onwards. While this provides security over the customer activated parts of the transaction, it does not necessarily make for a fully secure system. However it has been pointed out by Winn (2001) that "… vendors have been happy with the level of protection provided by SSL because the risks of accepting credit card charges over the Internet can be brought in line with the risks of accepting MOTO credit card charges …". As with the previous level, it is not uncommon for businesses to then email the completed order with credit card details attached to their active internet connection address, which is not necessarily where their web site is hosted. As an unsecured email there is a risk of content leakage and subsequent abuse of customer credit card information. More prudent businesses would ensure that the email was encrypted before being transmitted. Another alternative, also applicable at the previous level, is to store the order details on the web server pending download by the business operator for processing. Just where this data is stored will be partly dependent on available technology and skill levels, but it could be a simple data file, or perhaps in a database on the server. As a simple file, one would hope that the data was at least in a protected directory area, and hopefully the credit card information at least is encrypted, although this may be an unreasonable assumption in naïve cases. The transfer to the business operator would then proceed through an FTP (File Transfer Protocol) transfer, or perhaps an ODBC connection to the database. Clearly at this level there are some significant technological issues to be aware of and deal with appropriately. Whether this level of technological awareness is present in the business operator, or they are getting support from technical specialists (analogous to a PFD - Personal Flotation Device) is not specifically important. What does matter is that the issues are addressed. Irrespective of the manner in which the particular data is obtained and retrieved, at this level, the business operator can still quite happily conduct the remainder of the business transaction manually - as has been happening previously. In such an environment, the only real necessity for the business is to have MOTO approval from their financial institution to conduct business in this manner.
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Level 5: Secure Shopping with Real-Time Payments (Swimming) Eventually it may come that a business needs to automate their payments processing to bring it in line with their other systems. It may be that the volume of transactions has reached a point where manual processing is just too inefficient to be able to continue in that manner. It may be that they require immediate settlement of payments to allow delivery to take place - as with electronic delivery of goods. At this level, some may claim that the business is using the classic approach to e-commerce, although it is still possible that separate back-office processes may be used for general business activities. In such cases, there still exists the problem of ensuring consistency between web site data and organisational data. Until moving to the full integration mode, the business will continue to be operating at potentially decreased efficiency through having to duplicate and maintain separate information systems. However this may be a cost the business is willing to bear in the context of their operations. The issues associated with real-time payment processing systems are well documented, and beyond the intention of this paper. Again there are several ways to implement these systems - such as malls, third party services, bank-sponsored services, and others. The choice of the best implementation approach is dictated by the circumstances of the business enterprise. Level 6: Full Integration Approach ("Classic" model - also Water Skills Expert) At the point where all support systems are integrated with the web site, including the electronic payments, electronic ordering and other back-office functions, the organisation can be deemed to be using the high-end classic model for B2C e-commerce. At this level it is also highly likely that the web services will be shifted into either an in-house function or a dedicated server function with a hosting company.
CONCLUSIONS From these variations it can be seen that a number of alternative strategies emerge as potential implementation methods. A best choice implementation for a particular business can only be arrived at when given the full detail of the nature and context of the business concerned. While the technologists may declare a particular solution as being the best solution from a technical perspective, in practice, the commercial reality is that some of the technology is not economically viable when reduced to a cost per transaction. Indeed it becomes clear that the high-end "classic" approach works well for those businesses that need that level of functionality, but there remains a huge number of businesses for which different approaches as outlined in this paper are more suitable. It is convenient to redefine the B2C segment of e-commerce using the Immersion Model proposed in this paper as a tool to easily identify business enterprises in terms of where they may be presently, where they hope to be, and what types of skills and resources they will need to acquire to achieve their e-commerce goals.
REFERENCES Amor, D. (2000) The E-business (R)evolution, Prentice-Hall Inc, Upper Saddle River, NJ, 224. Bennett, W., (1999) E-commerce in Oz, in Information Age, Australian Computer Society, May 1999, Sydney, 11. Bushell, S. (1999) The Insider’s Guide to E-Commerce, CIO Magazine, May 1999, Australia, 75. Bushell, S. (2000) We did IT Amway, CIO Magazine, November 2000, Australia, 39. Clarke, R. (1993) EDI Is But One Element of Electronic Commerce, 6th International EDI Conference, Bled, Slovenia, June Dietel, H.M., Dietel, P.J., Nieto, T.R. (2001) e-Business & e-Commerce HOW TO PROGRAM, Prentice Hall, Upper Saddle River, NJ, 72. Lawrence, E., Corbitt, B., Tidwell, A., Fisher, J., Lawrence, J. (1998) Internet Commerce: Digital Models for Business, Jacaranda Wiley Ltd, Brisbane, 3. Maddox, K. (1998) Web commerce: building a digital business, John Wiley & Sons Inc, New York, 3. Schneider, G., Perry, J. (2001) Electronic Commerce, 2nd Edition, Course Technology, Canada, 3. Winn, J.K., (2001) Clash of the Titans: regulating the competition between established and emerging electronic payment systems, Berkeley Technology Law Journal, Spring 1999, v14,i2, 675. Winn, ibid.
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